Property worth $249 comma 000.00 can be purchased for 8% down and monthly mortgage payments of $ 1500.00 for 25 years. What effective annual rate of interest is charged?
The effective annual rate of interest is ______%.
Value of property = $249,000
Down payment = 8% * $249,000
Down payment = $19,920
Amount borrowed = $249,000 - $19,920
Amount borrowed = $229,080
Monthly payment = $1,500
Time period = 25 years or 300 months
Let monthly interest rate be i%
$229,080 = $1,500 * PVIFA(i%, 300)
Using financial calculator:
N = 300
PV = -229080
PMT = 1500
FV = 0
I = 0.514%
Monthly interest rate = 0.514%
Effective annual rate = (1 + Monthly interest rate)^12 - 1
Effective annual rate = (1 + 0.00514)^12 - 1
Effective annual rate = 1.0635 - 1
Effective annual rate = 0.0635 or 6.35%
Property worth $249 comma 000.00 can be purchased for 8% down and monthly mortgage payments of...
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