Question

What is the monthly payment for a home costing $425,000 with a 30% down payment and the balance financed for 30 years at 6.5%? (a) State the type. O sinking fund o ordinary annuity O present value O future value O amortization (b) Answer the question. (Round your answer to the nearest cent.) $

Answer 1

a)

Equated Monthly Instalment ( EMI ) is a form of ordinary annuity in which fixed payments are made over the term of the loan which contributes to interest and principal payments of the loan

So, option B is the correct option for problem a

b)

Down Payment

= Cost x Down Payment percentage

= $425,000 x 30%

= $127,500

Loan Amount

= Cost – Down Payment

= $425,000 - $127,500

= $297,500

EMI

= [ P x R x ( 1 + R ) ^ N] / [ ( 1 + R ) ^ N – 1 ]

Where,

P = Principal amount of loan = $297,500

R = Rate of interest per month

= Yearly interest rate / 12

= 6.5 / 12

= 0.5417% or 0.005417

N = Number of months in the loan period

= Number of years x 12

= 30 x 12

= 360

So, EMI

= [297,500 x 0.005417 x (1.005417) ^ 360] / [ (0.005417 ^ 360) – 1]

= [1611.46 x 6.99] / [ 5.99 ]

= $1,880.4