Question

Suppose home owners owe $4.5 trillion in mortgage loans. Instructions: Enter your responses as a positive...

Suppose home owners owe $4.5 trillion in mortgage loans.

Instructions: Enter your responses as a positive whole number (do not include a negative (-) sign).

(a) If the mortgage interest rate is 9 percent, approximately how much are home owners paying in annual mortgage interest? $ billion

(b) If the interest rate drops to 7 percent, by how much will annual interest payments decline? Interest decline of $ billion

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Answer #1

ANSWER:

1) Annual mortgage interest = total mortgage loans * mortgage interest rate

total mortgage loans = $4.5 billion

mortgage interest rate = 9%

annual mortgage interest = ($4.5 billion) * 9%

annual mortgage interest = $4.5 billion * .09 = $405 million

thus the house owners pay $405 million in interest.

2) Annual mortgage interest = total mortgage loans * mortgage interest rate

total mortgage loans = $4.5 billion

mortgage interest rate = 7%

annual mortgage interest = ($4.5 billion) * 7%

annual mortgage interest = $4.5 billion * .07 = $315 million

thus the house owners pay $315 million in interest.

Decline in annual unterest payments =annual mortgage interest (9%) - annual mortgage interest (7%)

Decline in annual unterest payments = $405 million - $315 million = $90 million

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