Question

You want to buy a $258,000 home. You plan to pay 10% as a down payment, and take out a 30 year loan for the rest.

a) How much is the loan amount going to?

b) What will your monthly payments be if the interest rate is 6%?

c) What will your monthly payments be if the interest rate is 7%?

Answer 1

a) Loan amount = Value of House - Down payment

Loan Amount = $258,000 - ($258,000 * 10%) = $258,000 - $25,800 = $232,200 --> Loan amount

b) Interest rate = 6%

This calculation requires application of PV of annuity.

r = 6% (annual) --> 6%/12 = 0.5% (monthly);

n = 12 * 30 months = 360 months

232,200 = P * 166.792 (Calculate values with calculator to have greater precision)

P = $1,390.56

c) Interest rate = 7%

r = 7% (annual) --> 7%/12 = 0.583% (monthly);

n = 12 * 30 months = 360 months

232,200 = P * 150.3683 (Calculate values with calculator to have greater precision)

P = $1,543.5