Question

You want to buy a $209,000 home. You plan to pay 5% 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 6%?

c) What will your monthly payments be if the interest rate is 7%?

Answer 1

a) Loan Amount = $209,000 * (1 - 5%) = $198,550

b) This question requires application of PV of annuity formula, according to which

PV =

r = 6%/12 = 0.5%, n = 30 * 12 = 360 months

198,550 = P * 166.7916

P = $1,190.41

c) This question requires application of PV of annuity formula, according to which

r = 7%/12 = 0.5833%, n = 30 * 12 = 360 months

198,550 = P * 150.3076

P = $1,320.96