To finance their new home, the Tiballis have agreed to an $80,000 mortgage loan at 8.75% APR. What will their monthly payments be if the loan has a term of 20 years?
A) $\$ 8608.14$
B) $\$ 7000.00$
C) $\$ 706.97$
D) $\$ 362.50$
E) $\$ 4313.29$

Question

Quizplus · Accepted Answer

To calculate the monthly payment for a fixed-rate mortgage, you can use the formula for a fixed-rate mortgage payment, which is derived from the annuity formula. The formula is $P = \frac{rPV}{1 - (1 + r)^{-n}}$, where $P$ is the monthly payment, $PV$ is the present value of the loan (or the amount of the loan), $r$ is the monthly interest rate (annual rate divided by 12), and $n$ is the total number of payments (months). Given an $80,000 loan at 8.75% APR for 20 years (240 months), first convert the annual rate to a monthly rate by dividing by 12, which gives $0.0875 / 12 = 0.007291667$. Then, plug the values into the formula:$$P = \frac{0.007291667 \times 80000}{1 - (1 + 0.007291667)^{-240}}$$$$P \approx \$706.97$$Therefore, their monthly payment would be approximately \$706.97.

To Finance Their New Home, the Tiballis Have Agreed to an $80,000