Question

You decide to take out a mortgage to buy a home after graduation. Assume a loan amount of $100,000 for 30 years at a nominal annual interest rate of 12%, compounded monthly.

What is the total amount of interest that is paid over the course of the 30 years?

Answer 1

Information provided:

Present value (PV)= $100,000

Time (N)= 30 years*12 = 360 months

Monthly interest rate (I/Y)= 12%/12 = 1%

The question is solved by first calculating the amount of monthly payment.

Enter the below in a financial calculator to compute the amount of monthly payment:

PV= -100,000

N= 360

I/Y= 1

Press the CPT key and PMT to compute the amount of monthly payment.

The value obtained is 1,028.61.

Thereby, the amount of monthly payment is $1,028.61.

Total interest paid over 30 years:

= ($1,028.61*360) - $100,000

= $4370,299.60 - $100,000

= $370,299.60

In case of any query, kindly comment on the solution.