Question

Oliver purchases a house and gets a 30-year mortgage for $205,000 at 5.5% APR. In addition to the monthly payment, the lender requires him to pay into an escrow account for homeowners insurance and property tax. His homeowners insurance is $1000 per year, and the property tax is $1400 per year. Determine the monthly payment to the lender that includes insurance and property tax. Round your answer to the nearest cent.

A. $1,163.25
B. $1,282.71
C. $1,347.68
D. $1,415.92

Answer 1

The monthly payment to the lender that includes insurance and property tax is approximately $1,347.68.

Step-by-step explanation:

To determine the monthly payment to the lender that includes insurance and property tax, we first need to calculate the monthly mortgage payment. The formula for calculating the monthly mortgage payment is:

P = (r * A) / (1 - (1+r)^(-n))

Where:

• P is the monthly payment
• r is the monthly interest rate (APR / 12)
• A is the loan amount
• n is the total number of payments (30 years * 12 months)

Using the given values, we can substitute them into the formula:

(0.055 / 12) * 205,000 / (1 - (1+(0.055 / 12))^(-30*12))

By solving this equation, we find that the monthly mortgage payment without insurance and property tax is approximately $1,165.54. To calculate the monthly payment that includes insurance and property tax, we add the annual amounts to the monthly mortgage payment:

($1,165.54 + $1,000 + $1,400) / 12 = $1,347.68

Therefore, the monthly payment to the lender that includes insurance and property tax is approximately C. $1,347.68