Question

Assume you are looking to buy a house $200,000 with a 20 year mortgage at 12%, estimate the monthly mortgage payment, first months interest, total amount to be repaid and the total interest.

PLEASE SHOW HOW YOU GOT EACH ANSWER:)

Answer 1

Answer a.

Cost of house = $200,000
Period = 20 years or 240 months
Annual interest rate = 12%
Monthly interest rate = 1%

Let monthly payment be $x

$200,000 = $x/1.01 + $x/1.01^2 + .... + $x/1.01^239 + $x/1.01^240
$200,000 = $x * (1 - (1/1.01)^240) / 0.01
$200,000 = $x * 90.81942
$x = $2,202.17

Monthly payment = $2,202.17

Answer b.

First Month:

Interest paid = 1% * Amount borrowed
Interest paid = 1% * $200,000
Interest paid = $2,000

Answer c.

Total Amount repaid = 240 * Monthly payment
Total Amount repaid = 240 * $2,202.17
Total Amount repaid = $528,520.80

Answer d.

Total interest paid = Total Amount repaid - Amount borrowed
Total interest paid = $528,520.80 - $200,000.00
Total interest paid = $328,520.80