Suppose you are buying your first home for 130000 and you ha

Suppose you are buying your first home for $130,000, and you have $15,000 for your down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be?

Select the correct answer.

Solution

starting principal = cost of house-downpayment = 130000-15000 = 115000

Where

Interest paid = Beginning balance * monthly interest rate

Principal = Monthly payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous year ending balance