If a sales price is $175,000, the LTV is 85%, and the interest rate is 4.75%, how much interest would be paid in the first full month?

If a sales price is $175,000, the LTV is 85%, and the interest rate is 4.75%, how much interest would be paid in the first full month?

• A. $501.03
• B. $232.29
• C. $588.80
• D. $692.71

Answer: (C)

To determine the amount of interest that would be paid in the first full month on a loan with a sales price of $175,000, an LTV of 85%, and an interest rate of 4.75%, follow these steps: First, calculate the loan amount. The Loan-to-Value (LTV) ratio of 85% means that the loan will cover 85% of the sales price. Therefore, the loan amount is: Loan Amount = Sales Price × LTV Loan Amount = $175,000 × 0.85 = $148,750 Next, calculate the monthly interest payment using the interest rate of 4.75%. The annual interest rate must be converted to a monthly interest rate by dividing by 12 months: Monthly Interest Rate = Annual Interest Rate / 12 Monthly Interest Rate = 4.75% / 12 = 0.3958333% To express this as a decimal for calculations, convert the percentage: Monthly Interest Rate = 0.0475 / 12 ≈ 0.003958333 Now, apply this monthly interest rate to the loan amount to find the interest for the first month: First Month Interest = Loan Amount × Monthly Interest Rate

To determine the amount of interest that would be paid in the first full month on a loan with a sales price of $175,000, an LTV of 85%, and an interest rate of 4.75%, follow these steps:

First, calculate the loan amount. The Loan-to-Value (LTV) ratio of 85% means that the loan will cover 85% of the sales price. Therefore, the loan amount is:

Loan Amount = Sales Price × LTV

Loan Amount = $175,000 × 0.85 = $148,750

Next, calculate the monthly interest payment using the interest rate of 4.75%. The annual interest rate must be converted to a monthly interest rate by dividing by 12 months:

Monthly Interest Rate = Annual Interest Rate / 12

Monthly Interest Rate = 4.75% / 12 = 0.3958333%

To express this as a decimal for calculations, convert the percentage:

Monthly Interest Rate = 0.0475 / 12 ≈ 0.003958333

Now, apply this monthly interest rate to the loan amount to find the interest for the first month:

First Month Interest = Loan Amount × Monthly Interest Rate