Question

Adrian, a single man who wants to buy a house in five years, read an article that recommended a down payment of 20 percent. With a large income and little debt, Adrian can afford to save a substantial amount of money every month. He is asking you for advice to help him reach his goal. It is now five years later, and Adrian has saved enough money for a 20 percent down payment on a house. He will have to borrow $135,000 in a 30-year loan with an annual interest rate of 6 percent compounded monthly. What will his monthly mortgage payment be

Answer 1

Based on the amount that Adrian borrowed and the annual interest, his monthly mortgage payment would be $809.39.

What is the monthly mortgage payment?

The monthly payment is an annuity because it will be constant so we can use the present value of an annuity formula.

Periods:

= 30 x 12

= 360 months

Interest:

= 6% / 12 months

= 0.5%

Monthly amount is:

135,000 = Amount x (1 - (1 + 0.5%)⁻³⁶⁰) / 0.5%

Amount = 135,000 / 166.791614392335294

= $809.39

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