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%

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