Illinois Real Estate Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

To determine the borrower's interest rate from the given monthly interest charge and loan amount, you'll need to apply a straightforward calculation using the formula for interest.

First, you understand that interest is calculated as a percentage of the principal (loan amount). The formula for monthly interest is:

\[

\text{Interest} = \text{Loan Amount} \times \text{Interest Rate per Month}

\]

Given that the interest charge for the previous month was $875, and the loan amount is $175,000, you can set up the equation:

\[

875 = 175,000 \times \text{Interest Rate per Month}

\]

To find the interest rate per month, rearranging the equation gives:

\[

\text{Interest Rate per Month} = \frac{875}{175,000}

\]

This calculation results in:

\[

\text{Interest Rate per Month} = 0.005

\]

To convert this monthly interest rate into an annual interest rate, multiply by 12 (since there are 12 months in a year):

\[

\text{Annual Interest Rate} = 0.005 \times 12 = 0.06 \text{ or } 6\%

\