Question

Since they filed bankruptcy in the past, a couple ends up paying a 12% fixed rate for a 30 year mortgage. With a better credit rating, they could have gotten the loan at a rate of 8%. If their loan amount is $140,000, how much more per month will the couple be paying for their mortgage as a result of their bankruptcy?
a.
$137,532.67
b.
$412.79
c.
$1,440.06
d.
$260.37


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Use the mortgage payment formula M = P * i / (1 - (1 + i)^(-n)), with n = 360 months.

For 12%: i = 0.12/12 = 0.01
M12 = 140000*(0.01)/(1 - (1.01)^(-360)) ≈ $1,440.06

For 8%: i = 0.08/12 ≈ 0.00666667
M8 = 140000*(0.00666667)/(1 - (1.00666667)^(-360)) ≈ $1,027.27

Difference ≈ 1440.06 - 1027.27 ≈ $412.79

Answer: B