Question

A home buyer bought a house for $245,000. The buyer paid 20 percent down but decided to finance closing costs of 3 percent of the mortgage amount. If the borrower took out a 30-year fixed-rate mortgage at a 5 percent annual interest rate, how much interest will the borrower pay over the life of the mortgage?

SHOW IN EXCEL PLEASE

Answer 1

Answer :

Calculation of amount of interest that borrower will pay over the life of the mortgage :

To calculate we will first use excel function to calculate the peridic payment :

=PMT(rate,nper,pv)

where ,

rate is the rate of interest per period i.e 5% / 12

nper is the number of payments i.e 30 * 12 = 360

pv is the amount of mortgage including closing cost i.e 201880 (245000 * 0.80 * 1.03)

=PMT(5%/12,360,-201880)

PMT will be 1083.74

Total Interest Paid = (PMT * 360) -   amount of mortgage including closing cost

= (1083.74 * 360) - 201880

= 390144.78 - 201880

= 188,264.78 or 188265