Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay the mortgage at the end of year four,how much total interest did you pay?

Question

Quizplus · Accepted Answer

To find the total interest paid, we need to use the formula: 
Total Interest = (Total Payment) - (Principal)

First, let's calculate the total payment using the formula for a 30-year mortgage:

Total Payment = (Principal * Monthly Interest Rate * Number of Payments) / (1 - (1 + Monthly Interest Rate) ^ (-Number of Payments))

Where: 
Principal = $150,000 
Interest Rate = 7.5% = 0.075 
Monthly Interest Rate = 0.075 / 12 = 0.00625 
Number of Payments = 30 years * 12 months = 360

Plugging in the values, we get:

Total Payment = ($150,000 * 0.00625 * 360) / (1 - (1 + 0.00625) ^ (-360)) = $1,149.92

Now, to find the total interest paid, we subtract the principal from the total payment:

Total Interest = $1,149.92 * 4 - $150,000 = $44,134.68

Therefore, the answer is B.

Suppose You Take an FRM of $150,000 at 7