Question

Tom wishes to purchase a property that has been valued at $300,000. He has $30,000 available as a deposit, and will require a mortgage for the remaining amount. The bank offers him a 25-year mortgage at 2% interest, compounded monthly. Calculate the total interest paid on the mortgage. Round your answer to the nearest dollar.

Answer 1

Answer: The total interest paid on the mortgage is $179550

Step-by-step explanation:

The initial cost of the property is $300000. If he deposits $30000, the remaining amount would be

300000 - 30000 = $270000

Since the remaining amount was compounded, we would apply the formula for determining compound interest which is expressed as

A = P(1+r/n)^nt

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = 270000

r = 2% = 2/100 = 0.02

n = 12 because it was compounded 12 times in a year.

t = 25 years

Therefore,

A = 270000(1+0.02/12)^12 × 25

A = 270000(1+0.0017)^300

A = 270000(1.0017)^300

A = $449550

The total interest paid on the mortgage is

449550 - 270000 = $179550