Results 1 to 5 of 5

Math Help - solve for interest rate

  1. #1
    Newbie
    Joined
    Aug 2008
    Posts
    3

    solve for interest rate

    Trying to figure out, without the use of an excel function how to solve for an interest rate of a mortgage knowing the following paramaters.


    initial principal balance - 200,000
    total interest paid - 279,017.80
    years amortized - 30
    payments/yr - 12

    If it helps any the answer is 7%.


    I use the RATE function in excel and it works fine, but again trying to solve without that function.. Thank you!

    John
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    initial principal balance - 200,000
    total interest paid - 279,017.80
    years amortized - 30
    payments/yr - 12
    The formula for a standard mortgage is Payment * (1-vⁿ)/i = L

    Where Payment is the monthly payment, v = 1/1+i, i is your effective interest rate, and L is the Loan Amount.

    Total Interest paid is the Number of Payments you will make minus the loan amount. Let our Monthly Payment be P, so we have 360P - 200,000 = 279,017.8. Solving for P, we get 1330.61 for our monthly payment on the Loan.

    Taking our original loan equation, we have 1330.61 * \frac{1-v^{360}}{i} = 200000


    \frac{1-v^{360}}{i} = 150.31

    1 - (1 + i)^{-360} = 150.31i

    From here, you'd need logs/natural logs. Can you take it from here?

    Also, to see more detail on a home loan payment proving 7% is your answer another way, use my mortgage calculator here:

    http://www.mathcelebrity.com/mortgage.php
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Aug 2008
    Posts
    3
    i was with you til the logs/natural logs part.. haha
    I have someone putting this calculation into a program to calculate, so maybe she knows what to do w/ that formula... Unfortunately I don't even know what a log is (logarith?) if that was right, i must have just seen it on smarter than a 5th grader, and still am not sure how to do the calc, but let me check w/ our programmer and see if she does... thanks for the assistance so far. Thanks!
    Follow Math Help Forum on Facebook and Google+

  4. #4
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by slym34 View Post
    i was with you til the logs/natural logs part.. haha
    I have someone putting this calculation into a program to calculate, so maybe she knows what to do w/ that formula... Unfortunately I don't even know what a log is (logarith?) if that was right, i must have just seen it on smarter than a 5th grader, and still am not sure how to do the calc, but let me check w/ our programmer and see if she does... thanks for the assistance so far. Thanks!

    Thinking about this and looking at Kellison's book, ignore what I said about logs. Your programmer needs to write an iteration program to solve for interest rate. That is the only way to solve for interest rate for annuities from what I read.

    I'd show her the math for a Loan, and have her start at 0.0001 and add that until the Loan Amount equals what you want.

    Also, plug in your information on my mortgage program and show her how 7% gives you the answer you want. Sometimes as programmers, she may want to back into the answer that way if she is writing code.
    Follow Math Help Forum on Facebook and Google+

  5. #5
    Newbie
    Joined
    Aug 2008
    Posts
    3
    thanks I think that will work out.. I appreciate the assistance!

    John
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Interest Rate Help
    Posted in the Business Math Forum
    Replies: 5
    Last Post: June 11th 2011, 09:47 AM
  2. Calculate interest rate based on interest in parcels
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 17th 2011, 09:38 PM
  3. solve for interest rate
    Posted in the Algebra Forum
    Replies: 2
    Last Post: October 17th 2009, 07:09 AM
  4. interest rate
    Posted in the Business Math Forum
    Replies: 2
    Last Post: March 24th 2009, 07:29 PM
  5. How to solve interest rate to the ^5
    Posted in the Business Math Forum
    Replies: 2
    Last Post: October 27th 2007, 02:00 PM

Search Tags


/mathhelpforum @mathhelpforum