Difficulty: Medium

Average Score: 50%

A broker has listed a property for $225,000. An offer of $210,000 contingent upon inspection comes in the first week and the seller accepts it. Another offer of $205,000 comes in the second week. The seller accepts it as a secondary offer contingent upon the termination of the first offer. The first offeror demands the seller spend $5,000 in repairs before going through with the purchase.

What will the buyer's yearly principal and interest payments total (rounded up)? (BE SURE TO USE THE AMORTIZATION TABLE.)

Rationale

$23,248

To calculate the yearly principal and interest payments for a $320,000 mortgage at a 6% interest rate, amortized over 30 years, we can use the mortgage payment formula or an amortization table. The total yearly payments, when rounded, amount to $23,248.

A ($23,248) CORRECT

This value represents the correct annual payment for the mortgage based on a principal of $320,000, an interest rate of 6%, and a 30-year amortization period. The monthly payment calculated from the amortization table is approximately $1,937.33, leading to a total yearly payment of $23,248 when multiplied by 12.

B ($29,060) YOUR ANSWER

This amount is higher than the calculated yearly payment. It may result from incorrectly assuming a higher interest rate or shorter amortization period, resulting in inflated monthly payments. Accurate calculations show that the actual payment is significantly lower.

C ($29,867) YOUR ANSWER

Similar to option B, this figure exceeds the correct payment amount. This error could stem from a miscalculation in the mortgage formula or misunderstanding the details of the loan parameters, which specifically yield a lower annual payment.

D ($34,874) YOUR ANSWER

This choice represents an excessively high annual payment. Such a figure likely results from a misunderstanding of the amortization process or incorrectly applying a much higher interest rate, which would not apply to this mortgage scenario.

Conclusion

Understanding mortgage calculations is essential for accurately determining payment obligations. In this case, the correct annual principal and interest payment for the mortgage is $23,248, derived from a systematic application of the amortization formula and the correct financial parameters. Other options reflect common errors in calculation or assumptions about the loan structure.

What will the buyer's yearly principal and interest payments total (rounded up)? (BE SURE TO USE THE AMORTIZATION TABLE.)

$23,248

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