Ken and Bob took out $125000 mortgage at 8.75% three years ago. The amortization period was 25 years. What is their monthly payment?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

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

See eNotes Ad-Free

Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts.

Get 48 Hours Free Access
Approved by eNotes Editorial