Question

You are considering borrowing $200,000 for 30 years at an annual interest rate of 6% the bank agreed to give you 80% of the amount and the 20% should be paid by you. The loan agreement calls for MONTHLY equal payments, to be paid at the end of each MONTH.The total interest will be

Answer 1

Answer :

Calculation of Interest

Interest = (Total of Principal + Interest) - Principal

Calculation of Total of Interest + Principal

Total Principal and Interest = Monthly payments * Number of Months

Monthly payments can be calculated using PMT function of Excel

.=PMT(rate,nper,pv)

where,

rate is monthly interest rate i.e 6%/12 = 0.5%

nper is number of Payment i.e 30 * 12 = 360

pv = Amount of Borrowing i.e 160,000 [200,000 - (200,000 * 20%)]

=PMT(0.5%,360,-160000)

On solving,

Monthly payment is 959.28

Total Principal and Interest = Monthly payments * Number of Months

= 959. 28 * (30 * 12)

= 959.28 * 360

= 345341.10

Interest = (Total of Principal + Interest) - Principal

= 345341.10 - (200,000 * 80%)

= 185341.10