Question

You need a loan of ​$110 comma 000 to buy a home. Calculate your monthly payments and total closing costs for each choice below. Briefly discuss how you would decide between the two choices. Choice​ 1: 15​-year fixed rate at 6​% with closing costs of ​$1200 and no points. Choice​ 2: 15​-year fixed rate at 5.5​% with closing costs of ​$1200 and 4 points.

What is the monthly payment for choice​ 1? ​$


​(Do not round until the final answer. Then round to the nearest cent as​ needed.)

Answer 1

Monthly payment for choice​ 1 is $6,600

Explanation:

We will use following formula in order to calculate the monthly payment of choice 1

Value of Loan = Monthly payment x ( 1 - ( 1 + Interest rate )^-numbers of payments / interest rate

Where

Value of Loan = $110,000

Interest rate = 6%

Numbers of Payment = 15 years x 12 payments / year = 180 payments

Placing values in the formula

$110,000 = Monthly payment x ( 1 - ( 1 + 6% )^-180 ) / 6%

$110,000 = Monthly payment x 16.6662

Monthly Payment = $110,000 / 16.6662

Monthly Payment = $6,600.18

Monthly Payment = $6,600 (Rounded to whole number)