Thulisile bought a house and managed to secure a home loan for R790 000 with monthly payments of R9 680,70 at a fixed interest rate of 13,75% per year, compounded monthly, over a period of 20 years. If an average yearly inflation rate of 9,2% is expected, then the real cost of the loan (the difference between the total value of the loan and the actual principal borrowed) is
[1] R201 642.
[2] R270 749.
[3] R588 358.
[4] R1 060 749.
[5] R87 126.
Solution:
We need to calculate total value of loan by using inflation rate, so there will be no use of fixed interest rate of 13,75% per year, compounded monthly, thus it is redundant in the following calculation.
We will use this formula:
Total value of loan
Where, Monthly payment of loan
r= Periodic rate of interest
n= numbers of periods
Calculation of total value of loan:
Monthly payment PMT=9680.70 Monthly interest rate (r)
Number of period
Total value of loan:
Total value of loan is R1060749
Calculation of the real cost of the loan
Real cost of the loan = Total cost of loan -Actual principal borrowed
Hence, Option 2 is the correct answer.
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