You purchase a $1,250,000 home by providing a down payment equal to 20% of the purchase price.

You purchase a $1,250,000 home by providing a down payment equal to 20% of the purchase price. You take out a loan for the remaining balance that requires equal end-of -month payments over the next 30 years with an EAR of 3.8%. How interest will be paid with the first two payments?

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Expert Solution

Cost of Asset	$1,250,000
Down Payment = 20% i.e. $250,000
Loan	1000000

Interest	3.8%
Monthly Interest Rate	0.32%
Time	30 Years

Annuity Factor	=(1-((1+r)^-n))/r
	=(1-((1+0.32%)^-30))/0.32%
	= 214.611

Annual Payment	= 4659.57351



Month	Loan Beginning	Interest	Payment	Loan Outstanding
1	1000000	3167	4660	998507
2	998507	3162	4660	997009
		6329

Hence interest for first two months will be $6,329

jeff jeffy answered 2 years ago

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