Question

A family is purchasing a house and needs to finance a $195,000 mortgage from the bank with an annual percentage rate (APR) of 5.3%. The family is financing it over 30 years and making monthly payments. What is the monthly payment?
$541.67
$860.25
$1082.84
$1242.25

Answer 1

The monthly payment amount is $860.25.

Step-by-step explanation:

Step 1; The bank offers an amount of $195,000 with an APR of 5.3%. This means that the family must pay 5.3% of the $195,000 every year for 30 years. To calculate we must determine how much 5.3% of $195,000 is. To do that we make 5.3% a fraction by dividing it by 100 and multiplying it with the amount.

5.3% of $195,000 = $\frac{5.3}{100}$ × $195,000 = 0.053 × $195,000 = $10,335 per year.

Payment owed for 30 years = Payment owed a year × 30

                                               = $10,335 per year × 30 = $310,050 for 30 years.

Step 2; To find the monthly payments we need to know how many months are in a 30 year period. Months in 30 years = 30 × 12 months = 360 months. The monthly payment is, therefore, payment owed in 30 years divided by the months in that 30 year period.

Monthly payment = $10,335 / 360 = $ 861.25.

So the family must pay a monthly payment of $861.25 for 30 years.