Question

18. Sarah is considering purchasing a house for $178,000. The owner is willing to finance 85% of the purchase price with an 8% mortgage with amortization over 15 years. What is the monthly payment on this mortgage? A. $1446 B. $1473 C. $1701 D. $1733

Answer 1

Monthly Mortgage Payment

The Monthly payment is calculated by using the following formula

Monthly Payment = [P x {r (1 + r) ⁿ}] / (1 + r) ⁿ – 1

Loan Amount (P) = $151,300 [$178,000 x 85%]

Monthly Interest Rate (r) = 0.6667% [8% / 12 Months]

Number of Periods (n) = 180 Months [15 Years x 12 Months]

Monthly Mortgage Payment = [P x {r (1 + r) ⁿ}] / (1 + r) ⁿ – 1

= [$151,300 x {0.006667 x (1 + 0.006667)¹⁸⁰}] / (1 + 0.006667)¹⁸⁰ - 1

= [$151,300 x {0.00667 x 3.30692}] / (3.30692 - 1)

= [$151,300 x 0.02204] / 2.30692

= $1,446

“Therefore, The Monthly Mortgage Payment = (A). $1,446 per month”