Question

You are going to buy a home for $500,000. You will finance 80% of the $500,000 with a thirty year fixed rate mortgage. If the annual interest rate on the mortgage is 4%, The first monthly interest payment will be $1,333.33 True False

Answer 1

Answer:

TRUE

The cuota will be of 1,906.66 from which 1,333.33 are payment of interest.

Explanation:

We need to check if the mortgage cuota will be of 1,333.33

The formula for Cuota will be:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV  500,000 x80% = $400,000.00

time  30 years x 12 month = 360

rate 0.04 annual rate we divide by 12 to get the monthly rate. 0.03333

$500,000 \div \frac{1-(1+0.003333)^{-360} }{0.003333} = C$

C 1,909.66

The first monthly payment will be of 1,909.66

But this payment has bot, amortization on the principal and interest.

The interest expense for this payment will be:

carrying value x monthly rate

In this case, is the first payment so we are talking about the full mortgage.

400,000 x 0.003333 = 1,333.33