Question

You have just found your dream home. The selling price is $120,000. You will put $20,000 down and obtain a 30-year fixed-rate mortgage at 7.25% compounded monthly for the rest.

Assume that monthly payments begin in one month. What will each payment be (rounded to the nearest dollar)?

$819

$725

$682

$511

$401

Answer 1

We can calculate the EMI from PMT function in Excel

Where rate is 7.25% (it is divided by 12 since we have annual rate, to get the interest charged per month we divide it by 12)
nper is the number of periods of the loan tenure. we have 30 years and we make payment every month, so total periods is 360 (30*12)
PV is 100,000 since we're paying $20,000 as down payment.
FV is 0 because at the end of 30 years, the value of loan must be 0, that is you repay the entire amount.
type is 0 because the payments start begin in one month or at the end of the current period.

The monthly payment would be $682