Understanding Loan Payments and Interest

The video tutorial explains the loan payment formula used to calculate fixed installment loans, such as car loans and home mortgages. It covers the components of the formula, derived from the compounded interest and annuity formulas, and provides examples of calculating monthly payments and total interest for 30-year and 15-year mortgages, as well as a 5-year car loan. The video concludes with additional considerations for mortgage loans, including origination fees and escrow accounts.

What is the primary goal of installment buying?

• To pay for a purchase in a single payment

• To buy something today and pay back with equal payments over time

• To make irregular payments over a period of time

• To avoid paying any interest on a loan

Which two formulas are combined to derive the loan payment formula?

• Mortgage and car loan formulas

• Compounded interest and annuity formulas

• Annuity and simple interest formulas

• Simple interest and compound interest formulas

In the loan payment formula, what does 'R' represent?

• The number of payments per year

• The total interest paid

• The annual nominal interest rate

• The loan amount

For a 30-year mortgage loan of $150,000 with a 5% interest rate, what is the approximate monthly payment?

• $805.23

• $500.00

• $1,200.00

• $1,000.00

How much total interest is paid over 30 years for a $150,000 loan with a 5% interest rate?

• $200,000

• $50,000

• $139,882.80

• $100,000

What is the monthly payment for a 15-year mortgage compared to a 30-year mortgage?

• It is double

• It is higher

• It is the same

• It is lower

How much more interest is paid with a 30-year mortgage compared to a 15-year mortgage?

• $50,000

• $70,000

• $30,000

• $100,000

What is the monthly payment for a 5-year car loan of $20,000 with a 5.5% interest rate?

• $450.00

• $382.02

• $500.00

• $600.00

What is the total interest paid over five years for a $20,000 car loan at 5.5% interest?

• $1,500

• $2,921.20

• $4,000

• $5,000

What additional costs might be associated with mortgage loans?

• Origination fees and points

• None of the above

• Early repayment fees

• Late payment penalties