Question

A 25 year home loan of $125000 at 7.25% compounded monthly is obtained.

a.  Find the monthly payments rounded up to the next cent.


b.  State the total amount of interest paid on the loan assuming that it is kept for 25 years and all payments are the same.

Answer 1

	Amount of loan	$        125,000
	Annual rate	7.25%
	Monthly rate	0.604%
	Period of the loan in years	25
	Total number of payments	300
a)	Monthly payment	$903.51
	Total amount paid	$271,052.57
b)	Total amount of interest	$146,052.57

Excel formulas:

.

If you want to do it without using excel, then refer the following:

a) To find monthly payment we have use present value of annuity formula:

Where,
PVA = Present value of the annuity (amount of loan)
A = Annuity or payment
i = Interest rate in decimal form (i.e 7.25% = 0.0725)
a = Number of payments in a year
n = Number of years

Therefore,

Therefore, the monthly payment is $903.51.

b) Total interest paid:

Total number of payments over 25 years = 25 * 12 = 300

Therefore,

The total amount paid = Monthly payment * Total number of payments
=$903.51 * 300
=  271,053.00

Therefore,

Total interest paid = Total amount paid - Amount of loan
=  271,053.00 - 125,000.00
= $146,053.00