If a home buyer borrows $280,000 at a 7% interest rate for a 30-year mortgage, how much interest will they pay in the first year?

To calculate the interest that a home buyer will pay in the first year on a $280,000 loan at a 7% interest rate, you can use the simple interest formula for the first year, which is the principal amount multiplied by the interest rate.

The principal in this case is $280,000, and the interest rate is 7% (0.07 when expressed as a decimal).

By multiplying the principal by the interest rate:

$280,000 x 0.07 = $19,600.

This calculation shows that the total interest paid in the first year amounts to $19,600.

This first-year interest amount is based solely on the original loan balance, which is why it is accurate to use the principal amount directly without considering other factors such as amortization or changing principal balances in subsequent years. In a conventional mortgage, the highest interest payments occur in the initial years because the loan balance is highest at that point, allowing for maximum interest charge.

In this case, the correct choice indicates that the buyer will pay $19,600 in interest during the first year of the mortgage.