Question

You want to buy a house and will need to borrow $235,000. The interest rate on your loan is 5.65 percent compounded monthly and the loan is for 20 years. What are your monthly mortgage payments?

Answer 1

This question requires application of PV of annuity formula

PV =

1- (1+ г)-т Р т Р— Рeriodic Раутent т 3 гate рer period п 3D питber of periods

n = 20 * 12 = 240 months, r = 5.65%/12 = 0.4708% (monthly)

$235,000 = P * [\frac{1- (1 + 0.004708)^{-240}}{0.004708}]$

235,000 = P * 143.5984

P = $1,636.51