Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing?
A) $552.50
B) $2,761.02
C) $17,820.72
D) $33,458.47

Question

Quizplus · Accepted Answer

To calculate the monthly mortgage payment, we need to use the formula for fully amortizing mortgage loans:

PMT = P * r * (1 + r)^n / ((1 + r)^n - 1)

Where PMT is the monthly mortgage payment, P is the principal amount borrowed (which is $500,000 in this case), r is the monthly interest rate (which is 5.25% / 12 = 0.4375%), and n is the total number of monthly payments (which is 30 years * 12 months/year = 360 months).

Plugging in these values into the formula, we get:

PMT = 500000 * 0.004375 * (1 + 0.004375)^360 / ((1 + 0.004375)^360 - 1) = $2,761.02

Therefore, the monthly mortgage payment that the homeowner would need to make is $2,761.02.

Suppose a Potential Home Buyer Is Interested in Taking a $500,000