Question

The next four questions are related to your purchase of your first home for $600,000.

You have just purchased the house and have put a 20% down payment, and will borrow the remaining amount.  The 15-year fixed rate loan has an Annual Percentage Rate (APR) of 3.875%.   You will make monthly payments for the life of the loan.

How much is your monthly mortgage payment?

Select one:

a. $3,000 to $3,500

b. $3,500 to $4,000

c. More than $4,000

d. Less than $2,500

e. $2,500 to $3,000

Answer 1

Net loan amount = Property value * (1- down payment rate) = 600,000 * 80% = $480,000

Now let's calculate the monthly payment of mortgage :

PV of the monthly payments is equal to the value of mortgage. Thus, monthly payments are like annuity payments.

We will calculate the monthly payment value through the follwing formula :

PV = $480,000

i = 3.875%/12 = 0.322%

n = 15 years * 12 = 180 months

Putting values in the formula :

$480,000 = C * [(1-(1+0.322%)^-180) / 0.322%)

$480,000 = C* 136.34

C = $3,520.51

OPTION B