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

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