You want to buy a $195,000 home. You plan to pay 20% as a down payment, and take out a 30 year loan for the rest.
What will your monthly payments be if the interest rate is 6%?
To calculate the monthly payments, we need to determine the loan amount and then use the formula for the monthly mortgage payments.
First, we calculate the down payment:
Down payment = 20% of $195,000
Down payment = 0.20 * $195,000
Down payment = $39,000
Next, we find the loan amount:
Loan amount = Total cost of the home - Down payment
Loan amount = $195,000 - $39,000
Loan amount = $156,000
To calculate monthly mortgage payments, we will use the formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
Where:
M = Monthly mortgage payment
P = Principal loan amount
i = Monthly interest rate (annual interest rate / 12)
n = Total number of payments (number of years * 12)
P = $156,000 (loan amount)
i = 6% (annual interest rate) / 12 = 0.06 / 12 = 0.005 (monthly interest rate)
n = 30 years * 12 = 360 months
Using the formula:
M = $156,000 [ 0.005(1 + 0.005)^360 ] / [ (1 + 0.005)^360 – 1 ]
By calculating this, we find that the monthly mortgage payment would be approximately $935.44.