Craig decides to purchase a property that has been valued at $475,000. He has $80,000 available as a deposit and will require a mortgage for the remaining amount. The bank offers him a 25 year mortgage at 2% interest. Calculate the total interest he will pay over the life of the loan, assuming he makes monthly payments. First, we note that Craig requires a mortgage on $475,000−$80,000=$395,000. To calculate the monthly repayments we must apply the formula for P0 and solve for d, that is,
P0=d(1−(1+rk)−Nk)(rk).
We have P0=$395,000,r=0.02,k=12,N=25, so substituting in the numbers into the formula gives
$395,000=d(1−(1+0.0212)−25⋅12)(0.02 12),
that is,
$395,000=235.9301d⟹d=$1,674.22.
Therefore the total interest payable is
I=$1,674.22×25×12−$395,000=$107,266
which is $107,270 to the nearest $10.

107270