A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments.What portion of the first month's payment would be applied to interest?

Question

Quizplus · Accepted Answer

To calculate the portion of the first month's payment that is applied to interest, we need to find what the monthly interest rate is. We can do this by dividing the annual interest rate by 12:

5% / 12 = 0.00416667

Next, we can use the loan balance ($250,000) and the monthly interest rate (0.00416667) to calculate the interest portion of the first month's payment:

Interest = Loan balance x Monthly interest rate 
Interest = $250,000 x 0.00416667 
Interest = $1,041.67

Therefore, the answer is choice B, $1,042.

A Borrower Takes Out a 30-Year Mortgage Loan for $250,000