A bank offers a home buyer a 30-year mortgage at 7% per year. If the home buyer borrows $225 000 from the bank, how much must be repaid every year?

Question

Quizplus · Accepted Answer

The repayment amount can be calculated using the formula for an annuity: $PMT = P \times \frac{r(1+r)^n}{(1+r)^n-1}$, where $P$ is the principal amount ($225,000), $r$ is the annual interest rate (7% or 0.07), and $n$ is the number of payments (30 years). Plugging in the values: $PMT = 225,000 \times \frac{0.07(1+0.07)^{30}}{(1+0.07)^{30}-1}$, which calculates to approximately $18,131.94 per year.

A Bank Offers a Home Buyer a 30-Year Mortgage at 7