Your parents are buying a house for $187,500. They have a good credit rating, are making a 20% down payment, and expect to pay $1,575/month. The interest rate for the mortgage is 4.65%. How much interest is paid at the end of the second month?
To find out how much interest is paid at the end of the second month, we first need to calculate the monthly interest rate.
Annual interest rate: 4.65%
Monthly interest rate: 4.65%/12 = 0.3875%
Next, we need to calculate the remaining balance after the first month's payment.
Initial loan amount: $187,500
Down payment: 20% of $187,500 = $37,500
Loan amount: $187,500 - $37,500 = $150,000
During the first month, the monthly payment of $1,575 consists of both principal and interest. To determine the amount of interest paid in the first month, we subtract the monthly interest rate from the total payment:
Interest paid in the first month: $150,000 x 0.003875 = $581.25
After the first month, the remaining balance on the loan is $150,000 - ($1,575 - $581.25) = $149,006.25
To find out how much interest is paid at the end of the second month, we repeat the calculation:
Interest paid in the second month: $149,006.25 x 0.003875 = $578.75
Therefore, at the end of the second month, $578.75 in interest is paid.