A home buyer buys a house for $225 000. She pays 20% cash, and takes a fixed-rate mortgage for 10 years at 6.26% APR. If she makes payments at the end of every two weeks, which of the following is closest to each of her payments?

Question

Quizplus · Accepted Answer

The down payment made by the home buyer is 20% of $225 000 which is $45 000. The remaining amount is $225 000 - $45 000 = $180 000.

To calculate the bi-weekly payment, we need to first find the monthly payment and then divide by 2. The formula for calculating the monthly payment of a fixed-rate mortgage is:

M = P[r(1+r)^n/((1+r)^n)-1)]

Where:
P = principal amount (in our case, $180 000)
r = monthly interest rate = (6.26/12)% = 0.00522
n = total number of payments = 10 x 12 = 120

Plugging in the values, we get:

M = 180000[0.00522(1+0.00522)^120/((1+0.00522)^120)-1)]
M = $1 092.39

To find the bi-weekly payment, we divide by 2:

Bi-weekly payment = $1 092.39/2 = $546.19

Therefore, the closest answer to the bi-weekly payment is C) $932.05. The other answer options are significantly higher than the correct answer.

A Home Buyer Buys a House for $225 000