Exercise 3 ( Amortizing loan ) A prospective homeowner wants to determine how much she can borrow in the form of fixed rate 20 - year mortgage . Mortgage of that maturity carry a fixed interest rate of 906 . She estimates that she can afford annual , pre - tax payments ( interest plus principal ; all her mortgage of $25, 000 ( for simplicity , assume that mortgage payments are made once a year at the end of the year ). A. How large a mortgage can she afford , assuming she makes steady payments of $25, 000 per year for 20 years?" How much total interest will be paid over its 20 - year life ?" How much principal will be repaid in first year of mortgage ?" How much of the Final $25, 000 payment at the end of 20 years will be interest and how much will be principal ?"