Question

1. A borrower obtains a $150,000 reverse annuity mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower?
2. 1. $820
   2. $863
   3. $1,250
   4. $1,820

Correct answer is A

monthly rate: 8/12=.66667%

number of month = 10*12=120

monthly payment =future value/FVA .66667%,120

                  = 150000/182.95

            = $ 819.90 Per month (approx 820)

**you can find future value annuity factor using financial calculator

This explanation is so confusing and im not sure what number to enter on the financial calculator. Please explain

Answer 1

Here the future value is 150,000

Rate = 8% / 12 = 0.66667% ( since it is monthly compounding, we divide by 12)

Number of periods = 10 * 12 = 120

Future value = Monthly payments * [(1 + r)ⁿ - 1] / r

150,000 = Monthly payments * [(1 + 0.0066667)¹²⁰ - 1] / 0.0066667

150,000 = Monthly payments * [2.219649 - 1] / 0.0066667

150,000 = Monthly payments * 182.946443

Monthly payments = $820

You can also find this using a financial calculator:

I/Y 0.66667

N 120

FV 150,000

CPT PMT