David purchases a home in Wichita, Kansas for $320,000. He makes a 20% down payment and finances the remainder with a 30-year fixed-rate mortgage at an annual interest rate of 6%. What is the amount of interest David will owe for the first month of his mortgage?
Correct Answer
A) $1,280
Step 1 — Calculate the loan amount: $320,000 × (1 - 0.20) = $320,000 × 0.80 = $256,000. Step 2 — Calculate the monthly interest rate: 6% ÷ 12 = 0.5% per month = 0.005. Step 3 — Calculate the first month's interest: $256,000 × 0.005 = $1,280. The first month's interest payment is $1,280.
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Key Terms:
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