Question

Chris is purchasing a house and needs to finance a $150,000 mortgage from the bank with an annual percentage rate (APR) of 3.8% He is financing it over 30 years and making monthly payments. what is the monthly payment?

answer choices:
$416.67
$698.94
$833.33
$1393.88

Answer 1

$698.94

Explanation:

M = P [r (1 + r) ∧n / ( (1 + r) ∧n) - 1) ]

P = the principal loan amount = $150,000

Annual percentage rate = 3.8%

r = monthly interest rate = 0.038 / 12 = 0.003166

Term in years = 30

n = number of payments over the loan’s lifetime monthly = 30 * 12 = 360

M = the total monthly mortgage payment

Using the formula,

M = 150,000 [0.003166 (1 + 0.003166)∧360 / ((1 + 0.003166)∧360) - 1]

M = 150,000 [(0.003166 * 3.120394) / (3.120394 - 1)]

M = 150,000 [0.009880 / 2.120394‬]

M = 150,000 * 0.004660 = $699 (rounded up value)

As per mortgage calculator we get the exact value

M = $698.94