Question

Adam purchases a house and gets a 20-year mortgage for $205,000 at 4.5% APR. In addition to the monthly payment, the lender requires him to pay reto an escron account for the homeowners insurance and property tax. His homeowners insurance is $1300 per year and the property tax is $2100 per year. Determine the morthy payment to the lender that includes the insurance and property tax. Round your answer to the nearest cent.

Answer 1

To calculate the monthly payment to the lender that includes the insurance and property tax, we can use the mortgage formula with the following values:

- PV = $205,000 (the loan amount)

- i = 0.045 / 12 = 0.00375 (the monthly interest rate as a decimal)

- n = 20 x 12 = 240 (the term in number of months)

Plugging these values into the formula, we get:

PMT = 205,000 x 0.00375 x (1 + 0.00375)^240 / [(1 + 0.00375)^240 - 1]

PMT = 1,271.44

This is the monthly payment for the principal and interest only. To include the insurance and property tax, we need to add the monthly amounts of these expenses to the PMT. The monthly amounts are:

- Insurance = $1,300 / 12 = $108.33

- Tax = $2,100 / 12 = $175

Therefore, the total monthly payment to the lender is:

PMT + Insurance + Tax = 1,271.44 + 108.33 + 175 = $1,554.77

The answer is $1,554.77.