Question

Calculate monthly payments

An executive wishes to take out a $1.2 million mortgage. The yearly interest rate on the loan is 1.95% and the loan is for 20
years. Calculate the monthly payments.
Round your answer to the nearest cent.
Do NOT round until you have calculated the final answer.

Answer 1

250,000

Explanation:

Answer 2

$6042.23

Explanation:

You want the monthly payment on a $1.2M loan at 1.95% interest repaid in 20 years.

Amortization

The payment is given by the amortization formula:

A = P(r/12)/(1 -(1 +r/12)^(-12·t))

where P is the amount borrowed, r is the annual interest rate, and t is the number of years.

The formula tells you the loan payment is ...

A = 1200000(0.0195/12)/(1 -(1 +0.0195/12)^(-12·20)) ≈ 6042.23

The monthly payment will be $6,042.23.

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Additional comment

You already need a calculator for this, so you may as well use the built-in payment calculation function.