Question

1. Ada purchased a house using a fixed rate mortgage. The annual interest rate is 6.3%

compounded monthly for 15 years. The mortgage amount is $295,000. What is the monthly
payment on the mortgage?
$1,742.14
$2,164.84
$2,537.44
$1,717.98

Answer 1

The monthly payment on the mortgage is option C) $2537.44

Explanation:

• Principal (P): $ 295,000
• Rate (r): 6.3% = 0.063
• Number of times compounded (n): 12months
  `*`15 years = 180
• Number of years = 15

The formula is A = P(1 + r/n)^nt

⇒ A = 295000(1+0.063/180)^(180
`*`15)

⇒ A = 295000(180.063/180)^2700

⇒ A = 295000 (1.00035)^2700

⇒ A = 758854.5

Interest = Amount - Principle

⇒ 758854.5 - 295000

⇒ Interest = 463854.5

∴ The monthly payment for 15 years = 463854.5 / (15
`*`12)

The monthly payment on the mortgage = 2576.9 (approximately option C)