Question

You buy a house on October 1 with a price of $140,000 and receive a 30-year mortgage at an interest rate of 6.24%. You make 360 payments of $862 at the end of each month. How much of the second payment (on November 30th) relates to interest expense? (Round all dollar amounts to the nearest penny)

Answer 1

Here, since the payments are to be made monthly, so interest rate will be:

Rate of interest = 6.24% / 12 = 0.52% per month

Now,

Amount borrowed = $140000

First monthly payment = $862

Interest on first repayment = $140000 * 0.52% = $728

Principal amount in first monthly payment = Monthly payment - Interest payment

Principal amount in first monthly payment = $862 - $728 = $134

Outstanding principal amount after first payment = $140000 - $134 = $139866

Second monthly payment on November 30 = $862

Interest on second repayment = Outstanding principal amount * Rate of interest per month

Interest on second repayment = $139866 * 0.52% = $727.30

So, interest on second repayment of loan on November 30 will be $727.30.