Question

Your parents are buying a house for $187,500. They have a good credit rating, are making a 20% down payment, and expect to pay $1,575/month. The interest rate for the mortgage is 4.65%. How much interest is accrued at the end of the second month?

Answer 1

Sale price = 187500
20% down = 0.2 * 187500 = 37500
Loan amount = 187500-37500 = 150000
Interest = 4.65%/12 per month
Monthly payment = $1575
At the end of the first month, outstanding amount
= loan * interest rate - monthly payment
= 149006.25

Interest accrued during the first month
=150000*0.0465/12
= 581.25

Interest accrued during the second month
= outstanding amount at the end of the first month * (0.0465/12)
= 577.40

Total interest accrued during the first two months
= 581.25+577.40
= 1158.65 (to the nearest cent)