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BUYING A TOWNHOUSE SELLING FOR $175,000. THE BANK IS
OFFERING A 30-YEAR FIXED RATE MORTGAGE AT 5.5% WITH A MINIMUM 20% DOWN
PAYMENT. DETERMINE THE AMOUNT OF THE DOWN PAYMENT AND THE MONTHLY PAYMENT

Respuesta :

Using the monthly payment formula, we have that:

  • The down payment is $35,000.
  • The monthly payment is of $795.87.

What is the monthly payment formula?

It is given by:

[tex]A = P\frac{\frac{r}{12}\left(1 + \frac{r}{12}\right)^n}{\left(1 + \frac{r}{12}\right)^n - 1}[/tex]

In which:

  • P is the initial amount.
  • r is the interest rate.
  • n is the number of payments.

The down payment is 20% of $175,000, hence:

D = 0.2 x 175,000 = $35,000.

Hence the parameters are:

P = 175,000 - 35,000 = 140,000, r/12 = 0.055/12 = 0.004583, n = 30 x 12 = 360.

Then the monthly payment is found as follows:

[tex]A = P\frac{\frac{r}{12}\left(1 + \frac{r}{12}\right)^n}{\left(1 + \frac{r}{12}\right)^n - 1}[/tex]

[tex]A = 140,000\frac{0.004583(1.004583)^{360}}{(1.004583)^{360} - 1}[/tex]

A = $795.87.

More can be learned about the monthly payment formula at https://brainly.com/question/26267630

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