Bonnie and Claude want to buy a house. They can afford monthly payments of $1125.00. The bank offers them a mortgage at an interest rate of 3.10%, compounded semi-annually, with an amortization period of 25 years. a) What is the maximum amount of money the bank will lend them for their mortgage? Show your work. b) If they have $30,000 saved for a down payment, what is the maximum house price they can afford?

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.