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?
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.