Question

The next four questions are related to your purchase of your first home for $600,000. You have just purchased the house and have put a 20% down payment, and will borrow the remaining amount. The 15-year fixed rate loan has an Annual Percentage Rate (APR) of 3.875%. You will make monthly payments for the life of the loan. How much is your monthly mortgage payment? Select one: a. $3,500 to $4,000 b. $2,500 to $3,000 c. Less than $2,500 d. $3,000 to $3,500 e. More than $4,000

Answer 1

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                          480,000
Rate of interest per period:
Annual rate of interest		3.875%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.03875 /12 =	0.3229%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	15
Total number of payments	N	15 × 12 =	180
Period payment using the formula	=	[ 480000 × 0.00323 × (1+0.00323)^180] / [(1+0.00323 ^180 -1]
Monthly payment	=	$                                                         3,520.51

Answer is: d. $3,000 to $3,500