Question

11. Suppose you want to buy a house. The house costs $180,000. You plan to make a cash down payment of 15 percent and finance the balance over 20 years at 7 percent. What will be the amount of your monthly payment?

Answer 1

Cost of hosue is $ 180,000/.

Down payment is = (180000*15%)

Down payment is = $ 27,000/.

Balance of cost of house payable in monthly installments = (180000-27000)

Balance of cost of house payable in monthly installments = $ 153,000/.

Monthly payments can be found using present value of annuity formula

Present value of annuity is = P*(1-(1+r)^-n)/r

Present value of annuity is = $ 153,000/.

"P" is Monthly payment =?

"r" is Monthly interest rate = (7%/12) = 0.5833%

"n" is No of months = 20*12 = 240

153000=P*(1-(1+0.005833)^-240)/0.005833

153000=P*129.986501

P is = (153000/129.986501)

P is = $ 1,177.05/.

Monthly payments are $ 1.177.05/. Approx.