You are looking to purchase a new home that is listed at 315

You are looking to purchase a new home that is listed at $315,100. You have saved enough to make a 20% downpayment, so the loan amount will be 80% of the purchase price. You are talking to a lender about a 4.0% interest rate loan for 30 years that amortizes monthly. What is your monthly debt service?

Solution

Loan amount = 80% of 315,100 = $252,080

To find the monthly debt service you can use the \"PMT\" function in excel. The inputs will be: Rate = 4%/12, Nper = 30*12 = 360 and PV = 252,080

The PMT function will give the figure of $1,203.47. This is the monthly debt service (includes both principal and interest)

Monthly debt service = $1,203.47

Alternative method:

Monthly debt service = [P x R x (1+R)^N]/[(1+R)^N-1]

= [252,080*4%/12*(1+4%/12)^360]/[(1+4%/12)^360-1]

= 2784.2219/2.3135

= $1,203.47