Interest on 5 % fixed rate loan 15 years

Buyer Hoadley took out a fixed rate loan at 5% for 15 years on a home that cost $200,000 with an LTV ratio of 70%.  What is the first month’s interest that buyer Hoadley will be paying?

  1.   $583.34
  2.   $1,000.00
  3.   $498.90
  4.   $750.00

The answer is A.

Let’s do some math here.

Remember that the Loan to Value Ratio is the ratio of the loan amount to the price of the home – so if it is 70%, as it is in our example, then it just means that the mortgage is 70% of the value of the home.

We know that  Mortgage Amount = LTV * Price of the Home

So, the Mortgage Amount = .70 * $200,000 = $140,000.  Since he pays 5% interest every year, and his mortgage is for $140,000 then that means he pays .05 * $140,000 = $7,000 in interest every year.

$7,000 every year is $7,000/12 = $583.34 every month.