Question

Jim and Lisa are buying their first home together. The purchase price is $157,500.00 and they are putting a 20 percent down payment on the home. They have been approved for a 20-year loan at a 6 percent interest rate. What is the total amount of interest that they will pay during the entire loan?
A. $84,724.16
B. $86, 518.40
C. $88,724.16
D. $90,518.40

Answer 1

Answer: D. $90,518.40

Explanation:

They are putting a 20% down payment on the home which means they are paying 80%;

= 80% * 157,500

= $126,000

First find the monthly payments;

Present value = Payment * ((1 - (1 + r)^-n) / r)

n= 20 * 12 = 240 months

r = 6/12 = 0.5%

126,000 = Payment * (( 1 - ( 1 + 0.5%)⁻²⁴⁰) / 0.5%)

126,000 = Payment * 139.58077168292915831291691663652‬

Payment = 126,000/139.58077168292915831291691663652‬

Payment = $902.70313

They'll pay that for 240 months;

= 902.70313 * 240

= $216,648.7512

Interest = 216,648.7512 - 126,000

= $90,648.7512‬

= $90,648.75

Closest answer is D.