Question

Consider a home mortgage of ​$175,000 at a fixed APR of 4.5​% for 20 years.

a. Calculate the monthly payment.

b. Determine the total amount paid over the term of the loan.

c. Of the total amount​ paid, what percentage is paid toward the principal and what percentage is paid for interest.

Answer 1

a)

We will use a BA 2 plus financial calculator to find the monthly payment of the mortgage:

PV(Loan amount) = $175,000

I/Y(Interest rate per month) = 4.5​%/12 = 0.375%

N(Number of months) = 20*12 = 240

CMPT PMT

Monthly Payment = $1,107.14

b) Total Amount paid = Monthly Payment*Number of months = $1,107.14*240 = $265,713.74

c) Total Interest Paid = Total Amount paid - Loan Amount =  $265,713.74 - $175,000 = $90,713.74

Interest percentage of total amount paid = $90,713.74/ $265,713.74 = 34.14%

Principal percentage of total amount paid = $175,000/ $265,713.74 = 65.86%