Question

#29 How much interest will you pay during the last five years of a 25-year $375,000 loan with an APR of 5.75% if you only make the minimum monthly payments?

A. $26,490

B. $392,324

C. $18,784

D. $21,734

E. $19,381

Answer 1

PV of Loan =375000
Rate per month =5.75%/12
Number of Months =25*12 =300
Monthly Payment =PV/((1-(1+r)^-n)/r) =375000/((1-(1+5.75%/12)^-300)/(5.75%/12))=2359.1490

Number of Months =20*12 =240
Principal Part Remaining for last 5 years =PV*(1+r)^n-PMT*((1+r)^n-1)/r)
=375000*(1+5.75%/12)^240-2359.1490*((1+5.75%/12)^240-1)/(5.75%/12))=122765.1321

Total Interest in last 5 years =Number of Periods*PMT-Principal Part Remaining for last 6 years
=60*2359.1490-122765.1321 =18783.81 or 18784
Option c is correct option