Alex Guadet of Forrest City, Arkansas, has been renting a small, two-bedroom house for several years. He pays $900 per month in rent for the home and $300 per year in property and liability insurance. The owner of the house wants to sell it, and Alex is considering making an offer. The owner wants $120,000 for the property, but Alex thinks he could get the house for $115,000 and use his $29,000 in 3 percent certificates of deposit that are ready to mature for the down payment. Alex has talked to his banker and could get a 4.5 percent mortgage loan for 25 years to finance the remainder of the purchase price. The banker advised Alex that he would reduce his debt principal by $2,200 during the first year of the loan. Property taxes on the house are $1,800 per year. Alex estimates that he would need to upgrade his property and liability insurance to $800 per year and would incur about $1,500 in costs the first year for maintenance. Property values are increasing at about 2.5 percent per year in the neighborhood. Alex is in the 25 percent marginal tax bracket.
Use Table 9.4 to calculate the monthly mortgage payment for the mortgage loan that Alex would need. Round your answer to the nearest cent.
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How much interest would Alex pay during the first year of the loan? Do not round your intermediate calculations. Round your answer to the nearest cent.