Question

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

Answer 1

The monthly payment is computed as shown below:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

Present value will be as follows:

= $ 180,000 - 15%

= $ 153,000

r is computed as follows:

= 7% / 12 (Since there are monthly payments, hence divided by 12)

= 0.583333333%

n is computed as follows:

= 20 x 12 (Since there are monthly payments, hence multiplied by 12)

= 240

So, the monthly payment will be computed as follows:

$ 153,000 = Monthly payment x [ (1 - 1 / (1 + 0.00583333333)²⁴⁰ ] / 0.00583333333 ]

$ 153,000 = Monthly payment x 128.9825105

Monthly payment = $ 153,000 / 128.9825105

Monthly payment = $ 1,186.21 Approximately

Feel free to ask in case of any query relating to this question