You borrow £149,000 to buy a house.The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly.If you pay for the house according to the loan agreement, how much total interest will you pay?

Question

Quizplus · Accepted Answer

We can use the formula for monthly mortgage payments:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where M is the monthly payment, P is the principal (the amount borrowed), i is the monthly interest rate (which is the annual interest rate divided by 12), and n is the number of payments (which is the loan period in years multiplied by 12).

Plugging in the given values:

P = £149,000
i = 0.075/12 = 0.00625
n = 30*12 = 360

M=149000[0.00625(1+0.00625)^360]/[(1+0.00625)^360-1]=£1,042.84

So you will be paying £1,042.84 per month for 30 years.

The total amount of interest paid over the life of the loan is:

Total Interest = (M x n) - P = (£1,042.84 x 360) - £149,000 = £226,059

Therefore, the answer is C.

You Borrow £149,000 to Buy a House