You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?

Question

Quizplus · Accepted Answer

The down payment is 20% of the house price, which is $51,000.
The loan amount is $255,000 - $51,000 = $204,000.
To calculate the monthly payment, we can use the formula for a fixed-rate mortgage:

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

where M = monthly payment, P = loan amount, i = monthly interest rate (annual rate divided by 12), and n = total number of payments (360 in this case).

Plugging in the numbers, we get:

M = 204000 [ 0.004875(1 + 0.004875)^360 ] / [ (1 + 0.004875)^360 – 1]
M = $1,203.48 (rounded to the nearest cent)

Therefore, the best choice is B.

You Purchase a $255,000 House and You Pay 20 Percent