Question

You want to buy a $186,000 home. You plan to pay 15% 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 interest rate is 5%? $ c) What will your monthly payments be if the interest rate is 6%?

Answer 1

a

Loan amount = 186000 * (1-15%) = 158,100

b

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                          158,100
Rate of interest per period:
Annual rate of interest		5.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.05 /12 =	0.4167%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	30
Total number of payments	N	30 × 12 =	360
Period payment using the formula	=	[ 158100 × 0.00417 × (1+0.00417)^360] / [(1+0.00417 ^360 -1]
Monthly payment	=	$                                                            848.71

Monthly payment at 5% is $848.71

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                          158,100
Rate of interest per period:
Annual rate of interest		6.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.06 /12 =	0.5000%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	30
Total number of payments	N	30 × 12 =	360
Period payment using the formula	=	[ 158100 × 0.005 × (1+0.005)^360] / [(1+0.005 ^360 -1]
Monthly payment	=	$                                                            947.89

Monthly payment at 6% is $947.89

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