Question

A homebuyer wishes to take out a mortgage of $500,000 for a 30 year period. What monthly payment is required if the interest rate is 10% ?

Answer 1

use the attached formula

Answer 2

okay, it wont let me attach :/
here it is :
http://prntscr.com/38lur4

Answer 3

It's alright! Thanks! Is the periodic interest rate 10% in my case? I'm a little hazy with loan/mortgage terminology. :P

Answer 4

Cool, ganeshie8!

I once used this formula often, but have long since forgotten it. However, either you or I could find it again by looking up "amortization formula."

Answer 5

good q :) how many months does one year has ?

Answer 6

12 :D

Answer 7

10% is the annual interest rate...

Answer 8

when they dont specify, always take it as annual

Answer 9

yes,

so periodic interest rate, i = r/n

i = 0.1 / 12

Answer 10

alright. So would my formula look like this: \[500,000 * 0.0083(1+0.0083)^(30) /(1+0.0083)^(30) -1\]

Answer 11

Where 500,000 is the principal; 0.0083 is .1/12 as the periodic interest rate; and 30 years is the "length of the loan in years" ?

Answer 12

ur interpretation is right,
but the numbers u have plugged are wrong

Answer 13

P = 500000
t = 30 years
r = 0.1
n = 12
i = r/n = 0.1/12

Answer 14

you forgot to multiply 30*12 in the exponent...

Answer 15

Oh okay, I was confused because it said "length of the loan in YEARS" so I assumed 30

Answer 16

thank you!

Answer 17

t = length of loan in years = 30
n = number of compounding intervals in a year = 12 (monthly)

Answer 18

since every month you're paying back some money,
the loan needs to adjust monthly accordingly

Answer 19

http://www.wolframalpha.com/input/?i=500000*%280.1%2F12*%281%2B0.1%2F12%29%5E%2812*30%29%29%2F%28%281%2B0.1%2F12%29%5E%2812*30%29-1%29

Answer 20

^^use wolfram for these lengthy calculations

Answer 21

Alright, thank you for your help @ganeshie8 !

Answer 22

np :)