A buyer purchases a home for $225,000. The have acquired a 30 year loan at 6.5% with 20% down. How much interest will the buyers pay over the life of the loan?

Question

I need help finding out the total interest paid over the life of the loan. Step by step, thorough and Please make it easy to understand. Thank you 

Answer 1

Since you are paying 20% up front, you are paying $45000 up front (.20*225000) which means you are borrowing

225000-45000 = $180,000.

 

Hopefully, you've learned the formula for figuring out the payment for an amortization problem. It is as follows:

 

A=P [(1+R/n)^nt *R/n]  / [(1+R/n)^nt -1] A is the amount for each payment, P is the principal, r is the rate, n is the number of payments per year and t is the time in years

 

So A = 180000 [(1+.065/12)^12*30 * .065/12] / [(1+.065/12)³⁶⁰ -1]

    A  = 180000 [ .037872239/5.991797982]

    A  = 1137.72

 

So you will have 360 payments of 1137.72. So over the 30 years, you will pay 360 * 1137.72 = $409,579.20 and you only borrowed 180,000, which means when you subtract them, you'll have 229,579.20 in interest.

 

Hope this helped.