Question

A

Answer 1

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

Answer: $265,800

=======================================================

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.

Answer: $145,800

=======================================================

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.

Answer: $74.10