Question

In: Finance

You want to buy a house that costs $194,000. You plan on making downpayment of 10%....

You want to buy a house that costs $194,000. You plan on making downpayment of 10%. You found a loan with a 5.9% annual rate compounded monthly for 20 years. How much interest is paid over the life of the loan.

Round your answer to two decimal places. Do not include the $ sign in your answer.

Solutions

Expert Solution

House cost                     194,000.00
Down payment 10%
Down payment 194000*10%
Down payment                       19,400.00
Cost financed                     174,600.00
PV of annuity for making pthly payment
P = PMT x (((1-(1 + r) ^- n)) / i)
Where:
P = the present value of an annuity stream                     174,600.00
PMT = the dollar amount of each annuity payment To be computed
r = the effective interest rate (also known as the discount rate) 6.06% ((1+5.9%/12)^12)-1)
i=nominal Interest rate 5.90%
n = the number of periods in which payments will be made 20
174600 = PMT x (((1-(1 + r) ^- n)) / i)
174600 = Annual payment* (((1-(1 + 6.06%) ^- 20)) / 5.90%)
Annual payment= 174600/(((1-(1 + 6.06%) ^- 20)) / 5.90%)
Annual payment=                       14,890.04
Total payment over 20 years= 14890.04*20
Total payment over 20 years=                     297,800.83
Total principal payment                   (174,600.00)
Total interest payment over 20 year period=                     123,200.83

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