A new home buyer pays 4% annual interest on her first mortgage and 9% annual interest on her second mortgage. If she borrowed a total of $320,000, 80% of which was in the first mortgage, what is her APPROXIMATE monthly interest payment?
A) $1,333
B) $1,733
C) $3,466
D) $13,333
E) $20,796
Here's another approach that uses some ESTIMATION and NUMBER SENSE.
Given:
80% of
$320,000 at 4% interest rate
20% of
$320,000 at 9% interest rate
Let's examine what would happen if
HALF of the
$320,000 were charged 4% interest, and
HALF were charged 9% interest.
The result would be a COMBINED annual interest rate of 6.5%.
Now what is 6.5% of
$320,000?
Hmmm, that's too much work.
Let's calculate 6% of
$300,000 instead. This works out to ANNUAL interest payment of $18,000, which translates into
$1500/month
So, using some NUMBER SENSE, we can conclude that 6.5% of
$320,000 results in interest payments in the range of
$1700-$1800/month
Of course, this is the resulting payments when HALF of the
$320,000 are charged 4% interest, and HALF are charged 9% interest.
In actuality, 80% is at 4% and only 20% is at 9%. So, the monthly payments will be a fair bit LESS THAN
$1700-$1800
So, choose
A
Cheers,
Brent
