Question
In: Finance
For a nice house for $300,000 (inclusive of closing costs) that you have selected, you want...
For a nice house for $300,000 (inclusive of closing costs) that you have selected,
you want to take on a 30-year mortgage loan.
The current rate is 3.75% fixed with payments at the start of each month.
Your calculations show that you would be paying ($Answer (to the nearest $)
in total interest cost during the mortgage period.
Solutions
Expert Solution
| Step-1:Calculation of monthly payment | |||||||||||||||
| Monthly payment | = | Loan amount / present value of annuity of 1 | |||||||||||||
| = | $ 3,00,000 | / | 216.6036 | ||||||||||||
| = | $ 1,385 | ||||||||||||||
| Working: | |||||||||||||||
| Present Value of annuity of 1 | = | ((1-(1+i)^-n)/i)*(1+i) | Where, | ||||||||||||
| = | ((1-(1+0.003125)^-360)/0.003125)*(1+0.003125) | i | 3.75%/12 | = | 0.003125 | ||||||||||
| = | 216.6036 | n | 30*12 | = | 360 | ||||||||||
| Step-2:Calculation of total payments made over the life of loan | |||||||||||||||
| Total Payments over the life of loan | = | Monthly payment * Total number of months over the life of loan | |||||||||||||
| = | $ 1,385 | * | 360 | ||||||||||||
| = | $ 4,98,607 | ||||||||||||||
| Step-3:Calculation of interest costs over the period of mortgage loan | |||||||||||||||
| Total amount repaid over the life of mortage | $ 4,98,607 | ||||||||||||||
| Less amount borrowed | $ 3,00,000 | ||||||||||||||
| Interest Costs | $ 1,98,607 | ||||||||||||||
| Thus, | |||||||||||||||
| Total interest paid during the mortgage period | $ 1,98,607 | ||||||||||||||
| Note:Intermediate calculations are not rounded up. | |||||||||||||||
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