A house sells for $1007.00 with an interest rate of 4 1/2%. What are the monthly payments for.

a. 15 years

b. 12 years

Solution:

(a)

P = 1007*(4.5%/12)*(1+4.5%/12)^(15*12)/((1+4.5%/12)^(15*12)-1) = 7.70

So the monthly payment is $7.70

(b)

P = 1007*(4.5%/12)*(1+4.5%/12)^(12*12)/((1+4.5%/12)^(12*12)-1) = 9.06

So the monthly payment is $9.06