Help! Mortgage Problem.

[math-impaired]

I need some major help with the question, if anyone is willing to help me out.

"You have purchased a new home and have a mortgage for 90,000 at 6% compounded monthly. The loan is amortized over 20 years in equal monthly payments of $644.79. Find the total amount paid in interest when the mortgage is paid off."

How exactly do you go about doing this question? I know I need to find the formula to use, but I'm still not sure what it is. Present value? Future value? The amortization formula??? When they say that the loan is amortized, what exactly does that mean?

My brain is fried. If someone can give me an example of how to go about a question like this, that would be really helpful. Thank you.

 

[Mrspi]

I need some major help with the question, if anyone is willing to help me out.

"You have purchased a new home and have a mortgage for 90,000 at 6% compounded monthly. The loan is amortized over 20 years in equal monthly payments of $644.79. Find the total amount paid in interest when the mortgage is paid off."

How exactly do you go about doing this question? I know I need to find the formula to use, but I'm still not sure what it is. Present value? Future value? The amortization formula??? When they say that the loan is amortized, what exactly does that mean?

My brain is fried. If someone can give me an example of how to go about a question like this, that would be really helpful. Thank you.

Don't panic!

THINK!

You borrowed $90,000, right?

You are making payments for 20 years at $644.79 each month.

How many monthly payments will you make?

If you pay $644.79 for EACH of these payments, how much will you pay in total?

How much more is this than the $90,000 you borrowed?

THAT is the interest you have paid.

(and amortization is "equalizing" the payments over the payment period to result in a total that is equal to the principal....amount borrowed....PLUS the interest due) The amortization formula was applied in calculating the monthly payment of $644.79....YOU don't have to worry about it.

I hope this helps you.

 

[math-impaired]

It helps a lot. Thank you so much, I could hug you. I'm going to try to work out the problem right now.

 

[TchrWill]

I need some major help with the question, if anyone is willing to help me out.

"You have purchased a new home and have a mortgage for 90,000 at 6% compounded monthly. The loan is amortized over 20 years in equal monthly payments of $644.79. Find the total amount paid in interest when the mortgage is paid off."

How exactly do you go about doing this question? I know I need to find the formula to use, but I'm still not sure what it is. Present value? Future value? The amortization formula??? When they say that the loan is amortized, what exactly does that mean?

My brain is fried. If someone can give me an example of how to go about a question like this, that would be really helpful. Thank you.

The formula for calculating a monthly loan payment is R = Pi/[1 - 1/(1+i)^n] where R = the periodic payment, P = the principal, or debt to be paid off, n = the number of payment periods over which the payments will take place, and i = the periodic interest rate in decimal form. The interest rate for a loan is usually quoted as an annual rate such as 8%. In the formula the first thing we do is convert this to i = .08 when considering annual payments.
If payments are to be made monthly, i = .08/12 = .006666 as the monthly interest rate. An example will illustrate the use of the formula.
Lets say you want to borrow $10,000 for a home improvement, to be paid off monthly over a period of 5 years, with an annual interest rate of 8%. So P = 10,000, n = 5 x 12 = 60, i = .08/12 = .006666. Then we have R = 10000(.006666)/[1 - 1/(1+.006666)^60] = 66.66/[1 - 1/(1.489790] = 66.66/.328764 = $202.76 per month. As simple as that. Over the life of the loan you will pay $12,165.49 back to the bank thereby incurring the cost of $2,165.49 for the priviledge of borrowing the money.

I'll let you work it out with your numbers.

 

[Denis]

"You have purchased a new home and have a mortgage for 90,000 at 6% compounded monthly. The loan is amortized over 20 years in equal monthly payments of $644.79. Find the total amount paid in interest when the mortgage is paid off."

For now, m-i, you need to understand that the "interest cost" of any
loan/mortgage is what you paid back less what you got;
like if you lend me $100 and I pay you back $10 per month for 12 months,
I paid you a total of 10 * 12 = 120, and since you gave me $100,
then my interest cost is 120 - 100 = 20: that's it, over and out!

Similarly with your problem:
interest cost = 644.79 * 12 * 20 - 90000 : that's it

How the 644.79 is calculated is something you'll be taught later,
if financial formulas is what you're presently learning in class.