A mortgage will be obtained to purchase property with a value of $75,000. If 20% is put down on and the balance financed at 12% for 30 years, the monthly payment is
With mortgages, we want to find the monthly payment required to totally pay down a borrowed principal over the course a number of payments.The standard mortgage formula is: M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1]
Where M is the monthly payment. i = rate/12 and n = no. of months.
$75,000 less 20% = $60,000 = P.
For our $60,000 mortgage at 12% compounded monthly for 30 years, we would first solve for i as
i = 0.12 / 12 = 0.01 and n as 12 x 30 = 360 monthly payments .
Next we would solve for (1 + i)^n = (1.01)^360, which yields 35.94964133.
Now our formula reads M = P [ i(35.949641333)] / [ 35.94964133- 1] which simplifies to
M = P [.01 x 35.94964133] / 34.94964133 or
M = $60,000 x 0.010286126 = $617.17
You can check this answer using a mortgage calculator like this one: Mortgage Calculator