Question

You have just found your dream home. The selling price is $120,000. You will put $20,000 down and obtain a 30-year fixed-rate mortgage at 7.25% compounded monthly for the rest. Suppose that in addition to the required monthly payment, you decide to make an additional principal payment along with your regular payment. How much extra must you pay each month (rounded to the nearest dollar) if you wish to pay off the loan in 20 years

Answer 1

$108

Step-by-step explanation:

The computation is shown below:

Given that

PV = 100,000, ($120,000 - $20,000)

FV = 0,

N = 360 (30 × 12 months)

rate = 7.25%/12

Now use PMT function in Excel

= PMT(RATE,NPER,-PV,FV,TYPE)

The present value comes in negative

After applying the above formula

The monthly payments is 682

Now replace N with 240 (20 years × 12 months)

So,

monthly payment = 790

Therefore

The difference is

= $790 - $682

= $108