Tom Burke buys a home in Virginia for $139,000. He puts down 30% and obtains a mortgage for 25 years at 12%. The portion of the first payment that covers interest is:

Question

Quizplus · Accepted Answer

Tom Burke puts down 30% of $139,000, which is $41,700. Therefore, he borrows $97,300.
To calculate the monthly payment, we use the formula:
Payment = (P*R)/(1-(1+R)^-N), where P = principal, R = monthly interest rate, and N = number of months.
R = 12%/12 = 1% (monthly interest rate)
N = 25*12 = 300 months
Payment = (97,300*0.01)/(1-(1+0.01)^-300) = $1,025.54
The portion of the first payment that covers interest can be calculated by multiplying the balance of the loan by the monthly interest rate:
Interest = Balance * Monthly interest rate = $97,300*0.01 = $973.00
Therefore, the answer is C.

Tom Burke Buys a Home in Virginia for $139,000