Question

You borrow $185,000 to buy a house. The mortgage interest rate is 7.5 percent and the loan period is 30 years. Payments are made monthly. What is your monthly mortgage payment?

$1,293.55

$953.70

$1,083.78

$1,153.70

$1,398.43

Answer 1

The monthly payment is computed as shown below:

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

Present value = $ 185,000

r is computed as shown below:

= 7.5% / 12 (Since the payments are monthly, hence divided r by 12)

= 0.625% or 0.00625

n is computed as follows:

= 30 x 12 (Since the payments are monthly, hence multiplied by 12)

= 360

So, the monthly payments will be computed as follows:

$ 185,000 = Monthly payment x [1 - 1 / (1 + 0.00625)³⁶⁰ ) / 0.00625 ]

$ 185,000 = Monthly payment x 143.0176273

Monthly payment = $ 185,000 / 143.0176273

Monthly payment = $ 1,293.55 Approximately

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