Question

A person who files bankruptcy ends up paying a 6% higher fixed interest rate on a 30-year home loan than a person who has not filed bankruptcy. The person who files bankruptcy pays a 12% interest rate on their home loan. If the loan amount is $150,000, how much more in total interest do they pay than the person who has not filed bankruptcy?
a.
$258,375.30
b.
$643.59
c.
$149,536.52
d.
$231,693.52


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

D

Work (summary):
- Monthly rate for 12% = 0.12/12 = 0.01, n = 360. Monthly payment = 150000*(0.01)/(1-(1.01)^-360) ≈ $1,542.92. Total paid ≈ $1,542.92*360 = $555,451.20, interest ≈ $555,451.20 - $150,000 = $405,451.20.
- Monthly rate for 6% = 0.06/12 = 0.005. Monthly payment = 150000*(0.005)/(1-(1.005)^-360) ≈ $899.40. Total paid ≈ $899.40*360 = $323,757.68, interest ≈ $173,764. (approx.)
- Difference in total interest ≈ $405,451.20 - $173,757.68 ≈ $231,693.52.

Thus answer D.