Question

24.You plan on purchasing a $650,000 home. You’ll put 20% down and borrow the balance from Santander Bank. You borrow the money on a 30-year loan with an APR of 6.5%. (15 points 4/3/3/3/3) a. What is your monthly mortgage? b. Five years later, what is the balance on the loan? c. In the first five years, how much interest did you pay?

Answer 1

Total Cost of house = 650,000

Deposit = 0.2 * 650,000 = 130,000

Loan taken = 650k - 130k = 520,000

Loan Term = 30 years = 360 months (assuming monthly mortgage payments)

Monthly rate on the loan = 0.065/12 = 0.5417%

(a) Monthly mortgage = Initial Loan Amount * r * (1+r)^n / [(1+r)^n - 1]

= 520000 * 0.005417 * (1.005417)^360 / [(1.005417)^360 - 1]

= $3287

(b) Remaining balance on loan = 520000 * 1.005417^60 - 3287 * (1.005417^60 - 1) / 0.005417

= $486,772

(c) Interest paid = 3287 * 60 - ( 520000 - 486772) = $163,992