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”