You want to buy a $400,000 home. You plan to pay 10% as a down payment, and take out a 15-year loan for the rest.Round answers to the nearest centA. How much is the loan amount going to be?$B. What will your monthly payments be if the interest rate is 4%? $C. What will your monthly payments be if the interest rate is 7%? $
Question
You want to buy a B. What will your monthly payments be if the interest rate is 4%?
Solution
A. The loan amount is calculated as follows:
The down payment is 10% of 40,000.
So, the loan amount will be the total cost of the home minus the down payment.
40,000 = $360,000
So, the loan amount is going to be $360,000.
B. To calculate the monthly payments with a 4% interest rate, we use the formula for a fixed-rate mortgage:
M = P[r(1+r)^n]/[(1+r)^n – 1]
Where: M is your monthly payment. P is the principal loan amount, which is $360,000. r is your monthly interest rate. Lenders provide you an annual rate, so you’ll need to divide that figure by 12 (the number of months in a year) to get the monthly rate. If your interest rate is 4%, your monthly rate would be 0.00333 (0.04/12=0.00333). n is your number of payments (the number of months you will be paying the loan)
So, M = 2,667.43
So, your monthly payments will be $2,667.43 if the interest rate is 4%.
C. If the interest rate is 7%, your monthly rate would be 0.00583 (0.07/12=0.00583).
So, M = 3,229.51
So, your monthly payments will be $3,229.51 if the interest rate is 7%.
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