High school math mortgage question
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High school math mortgage question

[From: ] [author: ] [Date: 11-06-08] [Hit: ]
What is his monthly mortgage payment?Well, I am confused. How can you have a 3 year mortgage amortized over 25 years? I thought they were the same. This doesnt make sense to me,......
Mark bought a house for $86,000. He paid 25% down and obtained a 3-year mortgage for the balance at 6.75%, amortized over 25 years. What is his monthly mortgage payment?

Well, I am confused. How can you have a 3 year mortgage amortized over 25 years? I thought they were the same. This doesn't make sense to me, can someone explain?

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OK

Well, this is confusing. Technically, it is called a 3/1 mortgage which means it is an adjustable rate mortgage that will stay with a fixed rate for the first 3 years. Then the rate will fluctuate after that. These loans are typically amortized over 30 years -- but in this case it is amortized over 25 years.

Here is the formula you need:

Payment = Loan amount(effective monthly interest rate/(1-(1/((1+effective monthly interest rate)^payments))))

P = A(i/(1-(1/((1+i)^n))))

86000*.75 = 63750 is the mortgage = A
.0675/12 = .005625 = i
25 x12 = 300 = n

P = 63750(.005625/(1-1/((1+.005625)^300))))
P = 63750 * .005625/.814126
P = 63750*.00691
P = $440.46

Hope that helps.

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I agree with you. It doesn't make sense to me either. I think "3-year" is a typo. I think it should say

"Mark bought a house for $86,000. He paid 25% down and obtained a mortgage for the balance at 6.75%, amortized over 25 years. What is his monthly mortgage payment?
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