Question

You have just made an offer on a new home and are seeking a mortgage. You need to borrow $600,000.

a. The bank offers a 30-year mortgage with fixed monthly payments and an interest rate of 0.5% per month. What is the amount of your monthly payment if you take this loan?

b. Alternatively, you can get a 15-year mortgage with fixed monthly payments and an interest rate of 0.4% per month. How much would your monthly payments be if you take this loan instead?

Answer 1

USING FORMULA

Monthly payments=Loan*(monthly rate)/(1-1/(1+monthly rate)^n)

1.
=600000*0.5%/(1-1/(1+0.5%)^(12*30))=3597.30315091655

2.
=600000*0.4%/(1-1/(1+0.4%)^(12*15))=4682.4866

USING FINANCIAL CALCULATOR
1.
N=12*30
I/Y=0.5%
PV=-600000
FV=0
CPT PMT=3597.30315091655

2.
N=12*15
I/Y=0.4%
PV=-600000
FV=0
CPT PMT=4682.4866