Question

Amy wants to take out a mortgage and qualifies for a $150,000 loan at an interest rate of 5%. She is debating the pros and cons of a 30 year mortgage but believes it will be her best option.

1. What is her monthly payment assuming no money down?
2. How much total interest will be paid if she makes all 360 minimum payments?
3. How much total interest has been paid with the 12^th payment?
4. How much total interest has been paid with the 36^th payment?
5. Briefly describe what happens to the total interest at 12 months, 36 months and the total interest paid if one additional payment per year is made. Include the numbers!

Answer 1

Answer to part 1:

Monthly payment assuming no downpayment will be: $805

This has been calculated assuming loan amount of $150,000 @5% for 30 years i.e. 360 months

Answer to part 2:

Amount of total interest paid will be $ 139,884.

Answer to part 3:

Total interest that has been paid with 12th payment is $ 617.

Answer to part 4:

Total interest that has been paid with 36th payment is $ 597.

Answer to part 5:

The interest payment in 12th month is $617 and in 36th month is $597. Hence, it is quite visible that with time the interest payment is getting reduced as the principle amount is getting repaid.