The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of:
A) $200,000 at 8 percent.
B) $100,000 at 12 percent.
C) $100,000 at 8 percent.
D) $200,000 at 12 percent.

Question

Quizplus · Accepted Answer

The monthly mortgage payment on a 30-year fixed-rate mortgage can be calculated using the formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
where M is the monthly payment, P is the principal amount, i is the monthly interest rate (annual interest rate divided by 12), and n is the number of payments (30 years x 12 months).
Using this formula, the monthly payment for each option would be:
A) M = 200,000 [ 0.08(1 + 0.08)^360 ] / [ (1 + 0.08)^360 – 1 ] = $1,468.41
B) M = 100,000 [ 0.12(1 + 0.12)^360 ] / [ (1 + 0.12)^360 – 1 ] = $1,028.61
C) M = 100,000 [ 0.08(1 + 0.08)^360 ] / [ (1 + 0.08)^360 – 1 ] = $734.22
D) M = 200,000 [ 0.12(1 + 0.12)^360 ] / [ (1 + 0.12)^360 – 1 ] = $2,057.05
Therefore, the home with the highest mortgage payment would be the one with a mortgage of $200,000 at 12 percent, option D.

The Home That Would Have the Highest Mortgage Payment on a 30-Year