Question

Stephen Black purchased a home for $155,000. Northridge Mortgage Inc. has approved his loan application for a 30-year fixed-rate loan at 5%. Stephen will pay 25% of the purchase price as a down payment. Find the down payment, amount of mortgage, and monthly payment.

Find the total interest Stephen will pay if he pays the loan on schedule.

Answer 1

Explanation:

The initial cost of the home is $155,000. Stephen will pay 25% of the purchase price as a down payment. It means that the amount paid as down payment is

25/100 × 155000 = $38750

The amount of mortgage would be

155000 - 38750 = $116250

We would apply the periodic interest rate formula which is expressed as

P = a/[{(1+r)^n]-1}/{r(1+r)^n}]

Where

P represents the monthly payments.

a represents the amount of the loan

r represents the annual rate.

n represents number of monthly payments. Therefore

a = $116250

r = 0.05/12 = 0.0042

n = 12 × 30 = 360

Therefore,

P = 116250/[{(1+0.0042)^360]-1}/{0.0042(1+0.0042)^360}]

116250/[{(1.0042)^360]-1}/{0.0042(1.0042)^360}]

P = 116250/{4.52 -1}/[0.0042(4.52)]

P = 116250/(3.52/0.018984)

P = 116250/185.419

P = $627

The total amount paid is

627 × 360 = 225720

Total interest paid is

225720 - 116250 = $109470