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Math Help - time value of money help mortgage constant

  1. #1
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    time value of money help mortgage constant

    having trouble solving the following problem..there is no interest rate given?? anyone know a formula/answer

    whats the monthly mortgage constant on a 20yr mortgage loan of $75000 requiring payments of $500 per month?
    Last edited by davidaross; September 12th 2005 at 09:29 AM. Reason: left out problem
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  2. #2
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    mortgage rates

    Put up the formula that you know for calculating monthly payment.

    I'll help you from there
    Last edited by MathGuru; September 12th 2005 at 01:23 PM.
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  3. #3
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    mortgage constant problem ..thanks

    the formula for mortgage constant

    _____r_____
    1-[1/(1=r)n ]


    on my financial calculator i entered pv=75000 n=20 pmt(-500) to find the interest 14.45% then entered p/y= 12 pv=-1 n=240 IY=14.45 and got .01 as the constant...not right..thanks for any help im really stuck
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  4. #4
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    monthly payment loan

    I need a formula for calculating monthly payment as well.

    and please define r and n in your previous formula.

    I'll do my best
    Last edited by MathGuru; September 12th 2005 at 01:23 PM.
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  5. #5
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    math mortgage constant

    this might help and thanks so much for your time

    r=the annual interest rate
    n=number of years

    You borrow $100,000 to buy a parcel of real estate. The annual interest rate is 10% and the loan is to be repaid with annual payments (including principal and interest) over the next 10 years. How much will your payments be?

    Keystrokes Display Comments

    CE/C CE/C 0.00 Clears display
    2nd CLR TVM 0.00 Clears TVM variables
    100000 +/- PV PV = -100,000.00 Stores original loan amount
    10 N N = 10.00 Stores number of periods
    10 I/Y I/Y = 10.00 Stores the interest rate
    CPT PMT PMT = -16,274.54 Annual payment
    Solving for Monthly and Annual Loan Constants

    You are offered a 10-year, monthly payment loan at 10% annual interest. Calculate the monthly loan constant (i.e., the monthly payment per $1 of loan amount) and the annual loan constant (the annual payment per $1 of loan amount).

    Keystrokes Display Comments

    2nd P/Y PY = 1.00
    12 ENTER PY = 12.00 Sets number of payments per year at 12
    CE/C CE/C 0.00 Clears display
    2nd CLR TVM 0.00 Clears TVM variables
    1 +/- PV PV = -1.00 Stores original loan amount
    10 x 12 = 120 N N = 120.00 Stores number of periods
    10 I/Y I/Y = 10.00 Stores the interest rate
    CPT PMT PMT = .0132151 Monthly loan constant
    x 12 = .1585809 Annual loan constant

    Monthly payment: $100,000 x .0132151 = $1,321.51
    Annual payment: $100,000 x .1585809 = $15,858.09
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  6. #6
    Site Founder MathGuru's Avatar
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    The mortgage constant represents the amount of each periodic loan payment expressed as a percentage of the original loan, necessary to pay the contract rate of interest and the entire principal in equal periodic installments over the term of the loan. The mortgage constant is sometimes called the installment to amortize since it is the periodic payment necessary to repay a loan of $1 completely without resorting to a balloon payment. Thus, the mortgage constant is always the periodic payment for a loan of $1 expressed on an annual basis.

    So wouldn't this mean that you take the payments of $500 per month and divide by the total loan amount $75000?

    500/75000 = .006666...

    NO, because I am not accounting for it being on an annual basis

    maybe try (500*12)/75000 = .08

    Is this correct?
    Last edited by MathGuru; September 12th 2005 at 07:10 PM.
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  7. #7
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    Quote Originally Posted by davidaross View Post
    the formula for mortgage constant

    _____r_____
    1-[1/(1=r)n ]


    on my financial calculator i entered pv=75000 n=20 pmt(-500) to find the interest 14.45% then entered p/y= 12 pv=-1 n=240 IY=14.45 and got .01 as the constant...not right..thanks for any help im really stuck
    This formula works well... I recommend you to use this one..
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