Bank One is offering a 30yr mortgage with an EAR of 5 3/8%. You plan to borrow $150,000, what will your monthly payments be
To calculate the monthly mortgage payments, we can use the formula for calculating the mortgage payment amount:
Mortgage Payment = (Loan Amount * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate) ^ -Total Number of Payments)
Given:
Loan Amount = $150,000
EAR (Effective Annual Rate) = 5 3/8% = 5.375% (convert to decimal by dividing by 100)
Loan Term = 30 years = 30 * 12 months = 360 months
Now, let's calculate the monthly interest rate:
Monthly Interest Rate = (EAR / number of compounding periods per year) = 5.375% / 12 = 0.44792%
Substituting the values into the formula:
Monthly Interest Rate = 0.0044792
Total Number of Payments = 360
Mortgage Payment = ($150,000 * 0.0044792) / (1 - (1 + 0.0044792) ^ -360)
We can now calculate the monthly mortgage payment using a calculator or spreadsheet software.
Mortgage Payment ≈ $791.632
Therefore, your monthly mortgage payment would be approximately $791.63.