You borrowed $200,000 from a bank to buy a house at 4.5% interest for 30 years w

Question

You borrowed $200,000 from a bank to buy a house at 4.5% interest for 30 years with monthly payments. How much do you need to pay every month? And how much interest will you pay to the bank during year 10 only?

A. monthly payment = 665.55 interest in year10 = 6974.68

B. monthly payment = 1,013.37 interest in year10 = 7,326.68

C. monthly payment = 765.55 interest in year10 = 6974.68

D. monthly payment = 1915.13 interest in year10 = 6737.68

E. monthly payment = 1915.13 interest in year10 = 7326.68

Explanation / Answer

Amount of Loan (P) = $ 200,000

Term (n) = 30 years = 30 * 12 = 360 months

Interest ( i ) = 4.5 / 12 / 100 = 0.00375

The formula, Monthly Payment = P * r * ( 1 + r )n / [ ( 1 + r )n -1]

After inserting the values in the above formula, we get,

200,000 * 0.00375 * ( 1 + 0.00375 )360 / [ ( 1 + 0.00375 )360 -1]

200,000 * 0.00375 * ( 1 .00375 )360 / [ ( 1 .00375 )360 -1]

200,000 * 0.00375 * 3.8476  / [ 3.8476  -1]

200,000 * 0.00375 * 3.8476  / 2.8476  

1,013.37

The Monthly Payment = $ 1,013.37

Therrefore, The Answer is "B"

Monthly Payment = $ 1,013.37 and Interest in Year 10 = $ 7,326.68

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