You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A bank offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% per month). If you borrow the money from this bank, your monthly mortgage payment will be closest to:

Question

Quizplus · Accepted Answer

The formula for calculating the monthly payment on a fixed rate mortgage is:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:
M = monthly mortgage payment 
P = amount borrowed ($250,000)
i = monthly interest rate (0.0075)
n = number of payments (180)

Plugging in the values, we get:

M = 250000 [ 0.0075(1 + 0.0075)^180 ] / [ (1 + 0.0075)^180 – 1]

Simplifying this equation gives us a monthly mortgage payment of $2,536. Therefore, the best choice is D.

You Are Considering Purchasing a New Home