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 total interest will you be paying? (consider the interest you paid over the first 10 years of your original loan as well as interest on your refinanced loan)

Answer 1

Monthly payment on loan was:

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                          108,000
Rate of interest per period:
Annual rate of interest		7.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.07 /12 =	0.5833%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	30
Total number of payments	N	30 × 12 =	360
Period payment using the formula	=	[ 108000 × 0.00583 × (1+0.00583)^360] / [(1+0.00583 ^360 -1]
Monthly payment	=	$                                                            718.53

Interest paid on 10 years is:

Total interest pay:
Total payments	=	718.53 × 120
		$                                                      86,223.60
Less principle amount		$                                                         7,322.00
Interest payment- Finance charge		$                                                      78,901.60