You pay 20% down on a home with a purchase price of $180,000. Your bank will loan the remaining balance of $144,000 at 7% APR. You have an option to make annual payments or monthly payments on the loan
Both options have a 30-year payment schedule. What is the annuity payment under the annual plan? What is the annuity payment under the monthly plan?
What will be an ideal response?
Answer: The bank will loan (1 - 0.2) × $180,000 = $144,000, and this is the PV. The PVIFA using r = 7% and n = 30 is 12.40904.
The annual annuity payment is: PMT = = = $11,604.44.
The PVIFA using = 0.58333% and n = 30 × 12 = 360 periods is 150.30757.
The monthly annuity payment is: PMT = = = $958.04.
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