Question

You have decided to purchase a new house at the seaside. To finance the purchase, you have arranged for a 30-year mortgage loan for 80 percent of the $3,500,000 purchase price. The monthly payment on this loan will be $17,500. What is the APR on this loan? The EAR?

Answer 1

Calculation of APR:

loan amount = 80% of $35,00,000 i.e = $28,00,000; Term = 30 years; installment = $ 17500

Aggregate of 30 years payments = $17500 * 360(months) = $ 63,00,000

Total payment - principal = Interest amount = $ (63,00,000 - 28,00,000) = $35,00,000.

The APR will be = 6.392%

The Effective Annual Rate Calculator uses the following formula:

• Effective Annual Interest Rate i = (1 + r/n) ⁿ - 1
• Where,
• r is the nominal interest rate (expressed as a decimal),
• n is the number of payments per year.

Here r will be = 6.392% and

n will be 12 payments per annum.

Effective Annual Interest Rate i = (1 + 6.392/12) ¹² - 1 when simplified the monthly Effective Annual Interest rate will be = 6.583%