Question

You want to buy a $233,000 home. You plan to pay 5% as a down payment, and take out a 30 year loan for the rest.

a) How much is the loan amount going to be?

$

b) What will your monthly payments be if the annual interest rate is 6%?

$

c) What will your monthly payments be if the annual interest rate is 7%?

$

Answer 1

a.Information provided:

Price of the loan= $230,000

Down payment= 5%* $230,000= $11,500

Loan amount= Price of the loan - Down payment

= $230,000 - $11,500

= $218,500.

b.Interest rate= 6%/12= 0.50% per month

Time= 30 years*12= 360 months

The monthly mortgage payment is calculated by entering the below in a financial calculator:

PV= -218,500

N= 360

I/Y= 0.50

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 1,310.02.

Therefore, the monthly payment is $1,310.02.

c.Interest rate= 7%/12= 0.5833% per month

Time= 30 years*12= 360 months

The monthly mortgage payment is calculated by entering the below in a financial calculator:

PV= -218,500

N= 360

I/Y= 0.5833

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 1,453.69.

Therefore, the monthly payment is $1,453.69.