Question

1. What is the size of payment needed to pay off the following loan scenarios?

1. $180,000 principal, monthly payments, 6% interest, 15 year term.

2. $180,000 principal, annual payments, 6% interest, 30 year term.

Answer 1

a)

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where,

EMI= Equal Monthly Payment

P= Loan Amount

R= Interest rate per period =6%/12 =0.5%

N= Number of periods =15*12 =180

= [ $180000x0.005 x (1+0.005)^180]/[(1+0.005)^180 -1]

= [ $900( 1.005 )^180] / [(1.005 )^180 -1

=$1518.94

b)

Annual Payment = [P x R x (1+R)^N]/[(1+R)^N-1]

Where,

P= Loan Amount

R= Interest rate per period =6%

N= Number of periods =30

= [ $180000x0.06 x (1+0.06)^30]/[(1+0.06)^30 -1]

= [ $10800( 1.06 )^30] / [(1.06 )^30 -1

=$13076.8