Peter recently purchased a new home with a 25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount Peter will pay the bank over the life of the loan?
A)$23,420
B)$328,860
C)$250,000
D)$578,860

Question

Peter recently purchased a new home with a 25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount Peter will pay the bank over the life of the loan?
A)​$23,420
B)​$328,860
C)​$250,000
D)​$578,860

Quizplus · Accepted Answer

To find the total amount paid over the life of the loan, we use the formula for the monthly payment on a compound interest loan, which is P[r(1+r)^n]/[(1+r)^n-1], where P is the principal amount ($250,000), r is the monthly interest rate (8% annually, so 0.08/12 per month), and n is the total number of payments (25 years * 12 months/year = 300 payments). Plugging in these values, we find the monthly payment and then multiply by 300 to find the total amount paid. The total amount paid significantly exceeds the principal, reflecting the interest over 25 years, leading to the correct answer of $578,860.

Peter Recently Purchased a New Home with a 25-Year Mortgage