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

The correct answer is:

B) $412.79.

Explanation:

The formula for the monthly payment on a mortgage is as follows:



where M is the mortgage payment, P is the principal, r is the monthly interest rate, and n is the number of months of the mortgage.

Our principal, P, is 140,000.
For the mortgage they got due to their credit, r = 12%/12 = 0.12/12 = 0.01.
The mortgage is for 30 years; 30*12 = 360 = n.

This gives us:


Their monthly payment is $1440.06.

If they had received the 8% interest rate, we would have:


If they had the lower interest rate, their payment would be $1027.27.

This is a difference of:
1440.06-1027.27 = $412.79.

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