Question

# You want to buy a \$186,000 home. You plan to pay 15% as a down payment,...

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%?

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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