Question

You want to buy a home for $259,000. You plan to pay a 10% down payment, and take out a 30 year loan for the rest.

a. How much will the loan amount be?

b. What will your monthly payments be if the interest rate is 5%

C. what will your monthly payments be if the interest rate is 6%?

Answer 1

Answer;

Part a

House Price = $259,000

Down payment = 10%

Loan Amount = Home price - Down Payment i.e. $259,000 - 10% = $233,100

Part b

Monthlly Payment (PMT) formula =

Formula PMT =( Principle or present valuex r /n) /{1 - (1 +r/n) ^-nt}

Present value = $233,100

time = 30 years

N = 12 month

Nt = 30 x 12 month = 360

Rate = 5% per annum = 5%/12 = 0.41667% per month

So,

Monthly payment =$ 233,100 x 0.41667% / (1 - (1+0.41667%)^-360)

= $971.25/ (1-0.223827)

=$ 971.25 /0.776173

= $1,251.33 per month

Part c

Monthlly Payment (PMT) formula =

Formula PMT =( Principle or present valuex r /n) /{1 - (1 +r/n) ^-nt}

Present value = $233,100

time = 30 years

N = 12 month

Nt = 30 x 12 month = 360

Rate = 6% per annum = 5%/12 = 0.5% per month

So,

Monthly payment =$ 233,100 x 0.5% / (1 - (1+0.5%)^-360)

= $1165.5/ (1-0.166042)

=$ 1165.5 /0.833958

= $1,397.55 per month

Cross check

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