Question

Your real estate agent mentions that homes in your price range require a payment of approximately $1200 per month over 30 years at 9% interest. what is the approximate size of the mortgage with these terms

Answer 1

Calculation of the approximate size of the mortgage
To calculate this , we can apply the present value of annuity formula to the mortgage terms given the problem.
Present value of annuity = Px{[1 - (1+r)^-n]/r}
Present value of annuity = approximate mortgage size = ?
P = Monthly payment = $1200
r = rate of interest per month = 9%/12 = 0.0075
n = no.of months of repayment = 30 years * 12 = 360
Present value of annuity = 1200 x {[1 - (1+0.0075)^-360]/0.0075}
Present value of annuity = 1200 x 124.2819
Present value of annuity = 149138.24
Approximate mortgage size = $1,49,138