Suppose home owners owe $5.5 trillion in mortgage loans. (a) If the mortgage int

Question

Suppose home owners owe $5.5 trillion in mortgage loans. (a) If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest? $? billion (b) If the interest rate drops to 4 percent, by how much will annual interest payments decline? Interest decline of $? billion Suppose home owners owe $5.5 trillion in mortgage loans. (a) If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest? $? billion (b) If the interest rate drops to 4 percent, by how much will annual interest payments decline? Interest decline of $? billion Suppose home owners owe $5.5 trillion in mortgage loans. (a) If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest? $? billion (b) If the interest rate drops to 4 percent, by how much will annual interest payments decline? Interest decline of $? billion

Explanation / Answer

Answer:

(a) Calculation of annual mortgage interest:

Interest = Principal * rate * time

=5500 Billion *5%*1 = $275 Billion

(b) Calculation of decline in annual interest payment:

Decline in interest % = 5% -4% = 1%

Hence decline in interest payment = Principal * Decline % * time

= 5500 Billion *1%*1 = $55 Billion

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