Question

You want to buy a house and will need to borrow $250,000. The interest rate on your loan is 5.83 percent compounded monthly and the loan is for 20 years. What are your monthly mortgage payments?

Answer #1

**Monthly Loan Payment**

Loan Amount (P) = $250,000

Monthly Interest Rate (n) = 0.485833% per month (5.83% / 12 Months)

Number of Months (n) = 240 Months (20 Years x 12 Months)

Monthly Mortgage Payment = [P x {r
(1+r)^{n}} ] / [( 1+r)^{n} – 1]

= [$250,000 x {0.00485833 x (1 +
0.00485833)^{240}}] / [(1 + 0.00485833)^{240} –
1]

= [$250,000 x { 0.00485833 x 3.200083}] / [3.200083 – 1]

= [$250,000 x 0.015547] / 3.200083

= $1,766.65 per month

**“Thus, the Monthly Loan
Payment would be $1,766.65 per month”**

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Suppose you have decided to buy a house. The mortgage is a
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You need a 25-year, fixed-rate mortgage to buy a new home for
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single balloon payment.
Required:
How large will this balloon payment have to be for you to keep
your monthly payments...

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