Question

Suppose that 10 years ago you bought a home for $120,000, paying 10% as a down payment, and financing the rest at 7% interest for 30 years.
This year (10 years after you first took out the loan), you check your loan balance. Only part of your payments have been going to pay down the loan; the rest has been going towards interest. You see that you still have $92,678 left to pay on your loan. Your house is now valued at $150,000.

1. How much interest have you paid so far (over the last 10 years)?

Answer 1

Home Price = $120,000

Down-payment = 10%

Loan Amount = $120,000(1-0.10)

=$108,000

Interest Rate =7%

- Calculating the Monthly payment of the loan:-

Where, P = Loan Amount = $108,000

r = Periodic Interest rate = 7%/12 = 0.5833%

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

Monthly Payment = $718.53

Outstanding Loan balance after 10 years = $92,678

Principal Loan paid over 10 years = Loan amount - Outstanding Loan balance after 10 years

=$108,000 - $92,678

= $ 15,322

Interest paid in 10 years = (No of payments in 10 years*Monthly Payment) - Principal Loan paid over 10 years

= ($718.53*10 years*12 months) - $15,322

= $70,901.6

So, Interest paid over 10 years = $ 70,901.6

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