Maryland Home Improvement PSI Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Maryland Home Improvement Test. Study using flashcards and multiple-choice questions, each with hints and explanations. Get ready to excel on your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

A home buyer obtains a fully amortized loan of $140,000. What is the payment difference between a 15-year loan at 5% and a 30-year loan at 6%?

$74
$87
$267
$342

The correct answer is: $267

To find the payment difference between a 15-year loan at 5% and a 30-year loan at 6%, we first need to understand how to calculate monthly mortgage payments using the loan amount, interest rate, and term. For a fully amortized loan, the formula to determine the monthly payment is: \[ M = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1} \] where: - $ M $ is the total monthly mortgage payment, - $ P $ is the loan principal (the amount borrowed), - $ r $ is the monthly interest rate (annual rate divided by 12), - $ n $ is the number of payments (loan term in months). 1. **Calculating the Payment for the 15-Year Loan at 5%:** - Principal: $140,000 - Annual Interest Rate: 5% → Monthly Interest Rate: 0.05 / 12 = 0.0041667 - Term: 15 years → 15 x 12 = 180 months Using the formula: \[ M_{15} = 140,000 \times \frac{0.