What is the annual interest rate of a fully amortizing,20-year fixed rate $175,000 mortgage,with a monthly payment of $1,266.41?

Question

Quizplus · Accepted Answer

The annual interest rate can be found using the formula for the monthly payment (PMT) of a fully amortizing loan: PMT = P[r(1+r)^n]/[(1+r)^n - 1], where P is the principal amount ($175,000), r is the monthly interest rate (annual interest rate divided by 12), and n is the total number of payments (20 years * 12 months = 240 payments). By plugging the given monthly payment ($1,266.41) into this formula and solving for the annual interest rate, we find that the rate that matches this payment closely is 6.125%. This calculation typically requires either a financial calculator or spreadsheet software to solve directly for the interest rate.

What Is the Annual Interest Rate of a Fully Amortizing,20-Year