Craig Hammer purchased a new condominium for $225,000. The bank required a $30,000 down payment. Assuming a rate of 8% on a 25-year mortgage, Craig's monthly payment is:
A) $1,431.30
B) $1,413.30
C) $1,505.04
D) $1,505.40
E) None of these

Question

Quizplus · Accepted Answer

First we need to calculate the amount of the mortgage loan. $225,000 (purchase price) - $30,000 (down payment) = $195,000 (mortgage loan). Using the formula for monthly mortgage payments, the calculation is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
where:
P = principal, which is the amount of the mortgage loan, $195,000
i = monthly interest rate, which is the annual interest rate divided by 12, 0.08/12 = 0.0066667
n = number of months, which is the number of years multiplied by 12, 25 x 12 = 300
Plugging these values into the formula:
M = $195,000 [ 0.0066667(1 + 0.0066667)^300 ] / [ (1 + 0.0066667)^300 – 1 ]
M = $1,505.04 (rounded to nearest cent)

Craig Hammer Purchased a New Condominium for $225,000