📚 How to calculate monthly mortgage amortization payments (Question 1)

📚 How to calculate monthly mortgage amortization payments (Question 1). Mortgage amortization

📚 How to calculate monthly mortgage amortization payments (Question 1) video duration 6 Minute(s) 35 Second(s), published by Study Force on 18 10 2017 - 05:09:20.

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Question: Nadia

This walk through will help you use an amortization schedule in excel to analyze your loans
You'll learn how to develop strategies to reduce interest and pay off Brought to you by: https://StudyForce.com 🤔 Still stuck in math? Visit https://StudyForce.com/index.php?board=33.0 to start asking questions
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Question: Nadia has a $195,000 mortgage. She locks into a closed mortgage with 2.21% interest amortized over 25-years, compounded semi-annually.

a) Calculate her monthly mortgage payments.

b) What percent of the total paid is interest?

What you'll need:

Present value (PV)

PV=R[〖1−(1+i)〗^(−n) ]/i → solving for R gives us → R=(PV∙i)/[〖1−(1+i)〗^(−n) ]
Where:

PV=present value amount
R=regular deposit/payment
i=interest rate per compounding period
n=total number of deposits

Since you're making monthly payments, yet the interest is being compounded semi-annually, there is a discrepancy between when payments are made and when interest is compounded. As a result, we'll need to find the effective annual rate (EAR), then use the EAR to find the effective monthly rate (EMR). This will represent the interest, i, in the PV formula.

Effective annual rate (EAR)
Converts a monthly rate to an effective annual rate.

k=(1+r/m)^m−1

Where:

k=Effective annual rate
m=frequency of compounding
r=rate in decimal

Effective monthly rate (EMR)
Converts an effective annual rate to a monthly one.

i=(k+1)^(1/12)−1

Summary: Combining the EAR and EMR formula:

i=(1+r/m)^(m/12)−1

Where:

i=interest rate per compounding period
r=rate provided per compounding period
m=frequency of compounding