Question

You buy a $120,000 house and have a 20% down payment (hence the mortgage is for $96,000). A 30 year mortgage has a rate of 6.5% and 0 points. What is the monthly mortgage payment?

Enter your answer below to the nearest cent. Do NOT include a dollar sign in you answer.

Answer 1

The monthly payment will be as follows:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 6.5% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.54166667% or 0.0054166667

n is computed as follows:

= 30 year x 12 months (Since the payments are on monthly basis, hence multiplied by 12)

= 360

So, the monthly payments is computed as follows:

$ 96,000 = Monthly payment x [ (1 - 1 / (1 + 0.0054166667)³⁶⁰ ) / 0.0054166667]

$ 96,000 = Monthly payment x 158.2108098

Monthly payment = $ 96,000 / 158.2108098

Monthly payment = $ 606.79 Approximately