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
<h3>Answer: $265,800</h3>
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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.
<h3>Answer: $145,800</h3>
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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.
<h3>Answer: $74.10</h3>
