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Homework answers / question archive / You are considering purchasing a new home
You are considering purchasing a new home. You will need to borrow $397,275 to purchase the home. A mortgage company offers you a 20-year fixed-rate mortgage (240 months) at 12% per annum. If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to ...
Answer:
M = P [{r(1+r)n} / {1+r)n-1}]
Where, M is your monthly payment.
P is your principal = $397,275
r is your monthly interest rate, calculated by dividing your annual interest rate by 12 = 1% = 0.01
n is your number of payments (the number of months you will be paying the loan) = 240
By solving,
M = 397,275 [{0.01(1+0.01)240} / {1+0.01)240-1}]
M = 397,275 (0.108926 / 9.892554)
M = 397,275 * 0.011011
M = $4374.52
Therefore monthly mortgage payment is closest to $4374.52
