You are planning to purchase a $120,000 house by making a down payment of $20,000 and borrowing the remainder with a 30- year fixed- rate mortgage with monthly payments. The first payment is due at t = 1. Current mortgage interest rates are quoted at 8 percent with monthly compounding. What will your monthly mortgage payments be?
All right explain to me why my logic is not right:
Im paying $20000 today so this should be PV, The total payment in the future is $120000, as the rate is month would be 0,08/12 = 0,006667 and t=30*12=360
When I put this in my HP12c:
PV = 20.000 CHS
FV = 120.000
I = 8 ENTER 12 /
N = 12 ENTER 30 X
PMT = 66,235
but the answer is the book is $733,76 how is my logic not right?
The question is about the loan, not about the purchase of the house.
You can look at this from the lender’s (bank’s) point of view or from the borrower’s (home buyer’s) point of view. The value of the loan today is $100,000 and in 30 years $0. The down payment doesn’t come into the calculation. (Well, it does, sort of: $100,000 = $120,000 − $20,000.)
I’m on this right now and I can’t even understand the formula in curriculum as they are using pv = a(1-(1+r)n/r) which is obvious but they continue with present value annuity factor = 1 - 1/1+(rs/m)mN/rs/m - where is formula come from? there are no mention about this formula in curriculum? What I’ve missed?