Question

Suppose the Bainters purchase the $150,000.00 home with a 20% down payment, a 30-year mortgage, and an interest rate of 4.2%. Annual property taxes are $1920.00. Home insurance is $750.00 per year, which is to be placed into an escrow account.

What is the Bainters' monthly cost if they purchase the home?

Answer 1

$809.32

Explanation:

The loan amount is 80% of $150,000, or $120,000. The monthly payment of principal and interest is $586.82.

The total annual expense for taxes and insurance is $1920 +750 = $2670, so the monthly expense is $2670/12 = $222.50.

Then the total of payments for mortgage and escrow will be ...

$586.82 +222.50 = $809.32

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The monthly P&I payment is given by ...

A = P(i/12)/(1 -(1 +i/12)^(-12t)) . . . . . where i is the annual interest rate, t is the number of years, and P is the amount financed.

A = $120,000(0.042/12)/(1 -(1 +0.042/12)^(-12·30)) ≈ $586.82

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A spreadsheet or financial calculator can be useful for calculating payments, though the formula isn't difficult to use.