Question

# You have decided to purchase a new house at the seaside. To finance the purchase, you...

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?

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%

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