Home Loan Problems Solution for Set 7 Question 7
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Solution to Question 7
For this type of question, you need this following equation:
A = i * P / (1 - (1 + i)^(-N) )
A is the payment Amount each month.
i is the interest rate expressed as a decimal (NOT A PERCENTAGE!), for the period of time over which payments are made.
P is the principal - this is the amount that Cory needs to borrow from the Chinatrust Bank.
N is the number of payment periods.
Since Cory has a 17 % deposit, the principal P for the loan is actually the price of the flat minus this deposit amount:
[an error occurred while processing this directive]P = 530000 - 0.01 * 17 * 530000 (we need the 0.01 to convert the deposit percentage into a decimal)
P = $439900
We need to convert the yearly interest rate into something we can use in this question - we need a monthly interest rate, so we need to divide by 12. We also need to divide the percentage rate by 100 to turn it into a decimal rate:
Monthly interest rate = 3.1 / 12 / 100
Monthly interest rate = 0.0026
We also need to calculate N, the total number of payments. Since payments occur every month, and Cory has a 30 year loan:
N = 12 * 30
N = 360
Armed with this information we can now fill in the numbers and then calculate the answer:
A = 0.0026 * 439900 / (1 - (1 + 0.0026)^(-360) )
A = $1878.42
So every month, Cory will have to pay $1878.42 to the Chinatrust Bank.