7. You want to buy a house and will need to borrow $280,000. The interest rate on your loan is 6.19 percent compounded monthly and the loan is for 20 years. What are your monthly mortgage payments?
Formula for Equal monthly payment (EMI) is:
EMI = P × r × (1 + r) n /{(1 + r)n - 1 }
Where,
P = Principal= $ 280,000
r = rate of interest = 6.19 % or 0.0619/12 p.a. or 0.005158333 monthly
n = No. of periods = 20 years x 12 months = 240 periods
Equal monthly payment = $ 280,000 x 0.005158333 x (1 + 0.005158333)240 / {(1 + 0.005158333) 240 -1}
= $ 280,000 x 0.005158333 x (1.005158333)240 / {(1.005158333) 240 -1}
= $ 280,000 x 0.005158333 x 3.437752551/ (3.437752551-1)
= $ 280,000 x 0.005158333 x 3.437752551/ (2.437752551)
= $ 280,000 x 0.005158333 x 1.410213908
= $ 2036.818954 or $ 2,037
Monthly mortgage payment is $ 2,037.
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