You borrow $199,000 to buy a house.The mortgage rate is 5.5 percent,compounded monthly.The loan period is 30 years,and 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

Total interest paid can be calculated using the formula:
Total Interest = (Monthly payment x Loan period) - Loan amount

We can first calculate the monthly payment using the formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where,
P = Loan amount = $199,000
i = Monthly interest rate = 5.5% / 12 = 0.004583
n = Loan period in months = 30 x 12 = 360

M = $1,131.56

Using this monthly payment, we can calculate the total interest paid as:
Total Interest = (Monthly payment x Loan period) - Loan amount
Total Interest = ($1,131.56 x 360) - $199,000
Total Interest = $407,961.60 - $199,000
Total Interest = $208,961.60

Therefore, the best choice is (C) $207,764, which is the closest answer to the calculated total interest.

You Borrow $199,000 to Buy a House