Ken and Bob took out $125000 mortgage at 8.75% three years ago. The amortization period was 25 years. What is their monthly payment?
The monthly payment for a mortgage can be calculated using the formula: M = P [ i*(1 + i)^n] / [ ((1 + i)^n)-1], where M is the monthly payment, i is the annual rate of interest divided by 12, n is the total number of payments which would be 12* number of years the mortgage is for and P is the amount borrowed.
The values given to us here are P = 125000, i = .0875 / 12 = 7.29*10^-3, n = 25*12 = 300. I have taken the mortgage to be paid back over 25 years.
The monthly payment is 125000[(0.0875/12)*(1 + .0875/12)^300)/((1 + .0875/12)^300 - 1)]
calculate using a calculator
=> M = $1027.67
Therefore the monthly payment is $1027.67
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