Beverly Frost bought a home for $190,000 with a down payment of $19,000 at 7% for 25 years. Since then the rate has risen to 9%. How much more would her monthly payment be if she bought the house at 9%?
A) $208.97
B) $436.40
C) $143.00
D) $226.44
E) None of these

Question

Quizplus · Accepted Answer

First, we need to calculate the original monthly payment amount with a 7% interest rate for 25 years:

PV = $190,000 - $19,000 = $171,000 (present value of the loan)
r = 7%/12 = 0.00583 (monthly interest rate)
n = 25 x 12 = 300 (number of monthly payments)

Using the formula for a fixed monthly payment on a loan:

PMT = PV x r x (1 + r)^n / ((1 + r)^n - 1) = $1,179.38

Now, we need to calculate the new monthly payment amount with a 9% interest rate for 25 years:

PV = $190,000 - $19,000 = $171,000 (present value of the loan)
r = 9%/12 = 0.00750 (monthly interest rate)
n = 25 x 12 = 300 (number of monthly payments)

Using the same formula:

PMT = PV x r x (1 + r)^n / ((1 + r)^n - 1) = $1,405.82

The difference between the two monthly payments is:

$1,405.82 - $1,179.38 = $226.44

Therefore, the answer is D: $226.44

Beverly Frost Bought a Home for $190,000 with a Down