Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What is the total amount of interest paid on a 30-year, $500,000 loan at a 6.25% interest rate?

1. $500,000

2. $608,292.40

3. $750,000

4. $1,250,000

The correct answer is: $608,292.40

To determine the total amount of interest paid on a 30-year loan of $500,000 at an interest rate of 6.25%, first, we need to calculate the monthly payment using the loan amount, interest rate, and loan term. The formula for calculating the monthly payment on a fixed-rate mortgage is: \[ M = P \frac{r(1 + r)^n}{(1 + r)^n - 1} \] where: - \(M\) is the total monthly payment, - \(P\) is the loan amount ($500,000), - \(r\) is the monthly interest rate (annual interest rate divided by 12), - \(n\) is the number of payments (loan term in months). First, we convert the annual interest rate from a percentage to a decimal and then to a monthly rate: \[ 6.25\% = 0.0625 \quad \text{(annual rate)} \] \[ r = \frac{0.0625}{12} = 0.00520833 \quad \text{(monthly rate)} \] The total number of payments over 30 years is: \[ n = 30 \