Question

You are thinking of purchasing a house. The house costs $ 400,000. You have $ 57,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 10 % per year. What will be your annual payment if you sign this mortgage?

Answer #1

House cost = 400000

Down Payment = 57000

Amount Remaining = 343000 = Loan amount

Rate = 10%

Number of payments = 30

Loan Amount = Present value of all the annual payments discounted at the annual rate.

343000 = Annual Payment * ( 1/(1+ 0.1)^1 + 1/(1+ 0.1)^2 +1/(1+ 0.1)^3 +1/(1+ 0.1)^4 +1/(1+ 0.1)^5 +1/(1+ 0.1)^6 + . ............... 1/(1+ 0.1)^29 +1/(1+ 0.1)^30 )

343000 = Annual payment * 9.43

**Annual Payment = $36385.18 Answer**

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