Question

- Tom buys a $240,000 home. He must make monthly mortgage payments for 30 years, with the first payment to be made a month from now. The annual effective rate of interest is 8%. After 15 years Tom doubles his monthly payment to pay the mortgage off more quickly. Calculate the interest paid over the duration of the loan.

Answer #1

APR(monthly) = 12[(1.08)1/12 - 1] = 7.72%

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 240,000, FV = 0, N = 360, I = 0.0772/12]

PMT = $1,714.42

Calculating Loan Balance after 15 years,

Using TVM Calculation,

FV = [240,000, PMT = -1,714.42, N = 180, I = 0.0772/12]

FV = $182,469.37

Calculating Time Period at payment of 2(1,714.42) = $3,428.84

Using TVM Calculation,

N = [PV = 182,469.37, FV = 0, PMT = -3,428.84, I = 0.0772/12]

N = 65.35

Interest Paid = 1,714.42(180) + 3,428.84(65.35) - 240,000

Interest Paid = $292,670.29

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