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a
Laura and Martin obtain a 25-year, $90,000 conventional mortgage at 9.5% on a house selling for $120,000. Their monthly mortgage payment, including principal and
interest, is $786.60.
a) Determine the total amount they will pay for their house.
b) How much of the cost will be interest?
c) How much of the first payment on the mortgage is applied to the principal?

Sagot :

Part a)

The home value is $120,000 and they get a loan for $90,000.

This must mean the down payment was 120,000 - 90,000 = 30,000 dollars. This is the payment made up front.

The mortgage has a monthly payment of $786.60 which is done for 25 years = 25*12 = 300 months. They pay back 786*300 = 235,800 dollars.

Therefore, the total amount they pay for the house is:

downPayment + loanRepayment = 30,000 + 235,800 = 265,800

Answer: $265,800

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Part b)

Refer to the previous part. Laura and Martin pay back $235,800 after being loaned $90,000

The total amount of interest is 235,800 - 90,000 = 145,800 dollars.

Answer: $145,800

=======================================================

Part c)

The annual interest rate is 9.5% which converts to the decimal form 0.095

Divide this over 12 to get the monthly interest rate in decimal form.

0.095/12 = 0.00791667 approximately

Then multiply this with the initial balance of $90,000

90,000*0.00791667 = 712.5003

This rounds to 712.50 and this represents the interest for the first month.

This leads to:

principal = monthlyPayment  - interest

principal = 786.60 - 712.50

principal = 74.10

It is unfortunately common practice that the starting monthly payments will be mostly interest. As time goes on, the increase payments decrease because they are tied directly to the remaining balance.

Answer: $74.10

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