Question

You want to buy a \$233,000 home. You plan to pay 5% as a down payment,...

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%?

\$

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.

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