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Math Help - mortgage

  1. #1
    Junior Member
    Joined
    Mar 2011
    Posts
    34

    mortgage

    Paula has bought a condo and requires a mortgage of $95,000. A trust company offers her a 20yr mortgage at 4.72%/a compounded semi-annually. The equivalent monthly rate is determined to be 0.003895204.

    Q. a) Calculate the monthly payment.
    b) Calculate the total interest paid on this mortgage.

    a) I figure to use the formula:

    PV = R(1-(1+i)^-n) / i

    I then rearrange the formula:

    R =PV * i / (1-(1+i)^n

    Now I plugged in the numbers into formula:

    95000 * 0.0236 / (1-(1+ 0.0236)^-20)

    =$6013.68 per month
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  2. #2
    MHF Contributor
    Joined
    Aug 2007
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    Re: mortgage

    You seem a bit confused on the units of time.

    0.0472 is the annual nominal interest rate. 20 is the number of years for the loan.

    0.0236 is the semi-annual effective interest rate. 40 is the number of half-years for the loan.

    (1.0236)^{\frac{1}{6}}-1 = 0.0038952042 is the monthly effective interest rate. 240 is the number of months for the loan.
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