Question

Paul has just purchased a $1.250.000 home and made a $400,000 down payment The balance can be amortized at 3% for 30 years What are the monthly payments? (5 marks) Tay

Answer 1

The monthly payment is $3583.63 ( approx )

Explanation:

Given,

The total cost of the home = $1,250,000

There is a downpayment of $400,000,

Thus, the present value of the loan, PV = 1250000 - 400,000 = $ 850,000

Annual rate = 3 % = 0.03,

So, the monthly rate, r =
`(0.03)/(12)=(1)/(400)`

And, time ( in years ) = 30

So, the number of months, n = 12 × 30 = 360

Hence, the monthly payment of the loan,

`P=(PV(r))/(1-(1+r)^(-n))`

`=(850000((1)/(400)))/(1-(1+(1)/(400))^(-360))`

`=3583.6342867`

`\approx \$3583.63`