Question

John is going to make a house purchase and borrow
$
325
,
000
$325,000 and has two options.



John can have a mortgage for
30
30 years an interest rate of
4.5
%
4.5% OR a mortgage for
15
15 years at an interest rate of
4.25
%
4.25%



What is
𝑟
r for the
30
30 loan?

Answer 1

To calculate the monthly interest rate \( r \) for the 30-year loan with an interest rate of 4.5%, you can follow these steps:

1. **Convert the annual interest rate to a decimal**:
\[
\text{Annual Interest Rate} = 4.5\% = \frac{4.5}{100} = 0.045
\]

2. **Calculate the monthly interest rate**:
To find \( r \), divide the annual interest rate by 12 (the number of months in a year):
\[
r = \frac{0.045}{12}
\]

3. **Perform the division**:
\[
r = 0.00375
\]

So, the monthly interest rate \( r \) for the 30-year loan is \( 0.00375 \), or 0.375%.