A borrower takes out a 10-year mortgage loan for $300,000 with an interest rate of 11.3%. What...

Question:

A borrower takes out a 10-year mortgage loan for $300,000 with an interest rate of 11.3%.

What would the constant monthly payment be?

Installment loan

Installment loan offers the borrower the option to pay back principal and interest in several payments. Usually, the monthly payments would be constant. In fact, we should know that the lender would calculate the interest on the current balance of our loan. That means the portion of the interest payments is higher than the principal payment in the monthly payments for some beginning years.

Answer and Explanation:

Let's summarize the given information:

N =10

Principal = 300,000

I =11.3%

Assume that the payment will happen at the end of year.

{eq}300,000 = PMT\times \frac{1-(1+\frac{11.3\%}{12})^{-10\times 12}}{\frac{11.3\%}{12}} {/eq}

Solve this equation for PMT.

PMT = 4,183.61

The constant payment would be 4,183.61


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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
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