Question

16. The Smiths are buying a $350,000 home. They have been approved for a 6.25% APR mortgage. They made a 25% down payment and will be closing on October 22nd How much should they expect to pay in prepaid interest at the closing?

Answer 1

Total amount to be paid	=	350000
APR	=	6.25%
Here, APR is annual percentage rate. APR includes all hidden costs which are not a part of nominal interest rate.
Downpayment	=	25%
Downpayment	=	350000*25%
Downpayment	=	87500
Total remaining amount	=	Total amount - Downpayment
Total remaining amount	=	350000-87500
Total remaining amount	=	262500
Considering October 22nd is 1 year from now,
Total interest to be paid	=	Principle*((APR)^(n))
n (number of years)	=	1
(APR)^(n)	=	(6.25%)^(1)
(APR)^(n)	=	0.0625
Total interest to be paid	=	262500*6.25%
Total interest to be paid	=	16406.25