Question

Someone borrows $600,000 for a 25-year mortgage at 5% annually.

Determine the amount of the monthly payments.

Answer 1

Answer -

Step 1 : The principal amount = $ 600000

Step 2 : Calculation of Monthly Interest Rate

Annual interest rate = 5% = 0.05

No of months in a year = 12

Monthly interest rate = 12 / 0.05

= 0.0041

= 0.41 %

Step 3 : Calculation of number of payments

No of years × no of months in a year

= 25 × 12

= 300

Step 4 : Applying formula

M = P [ i( 1+ i) ^n] / [ (1+i) ^n - 1 ]

= 600000 [ 0.41( 1+ 0.41 ) ^300] ÷

[ ( 1+ 0.41) ^300 - 1 ]

= $ 3507.54

You should use calculator for calculating the amount after applying formula