Question

A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments.

What portion of the first month’s payment would be applied to Interest?

Answer 1

- LOAN AMOUNT = $250,000

Calculating the Monthly mortgage payment amount:-

Where, P = Loan amount = $250,000

r = Periodic Interest rate = 5%/12 = 0.41666%

n= no of periods = 30 years*12 = 360

Monthly Mortgage Payment = $1342.04

- Interest portion in first payment = Loan amount* Periodic Interest rate = $250,000*0.0041666

Interest portion in first payment = $1041.65

% of Interest portion in first payment = Interest portion in first payment/Monthlly Mortgage Payment

% of Interest portion in first payment = $1041.65/$1342.04

% of Interest portion in first payment = 77.62%

Note- it does not specify the Interest portion in dollar terms or % terms. Thus, Calculated both

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