Problem 532 similar to Question Heip Loan amortization To bu

Problem 5-32 (similar to) Question Heip (Loan amortization) To buy a new house you must borrow $145,000. To do this you take out a $145,000, 25-year, 11 percent mortgage. Your mortgage payments, which are made at the end of each year (one payment each year), include both principal and 11 percent interest on the declining balance. How large will your annual payments be? The amount of your annual payments will be (Round to the nearest cent.)

Solution

Amount of mortgage = $145,000

Number of annual payments = n = 25

Interest rate = r = 11% = 0.11

Loan payment = (Loan amount * r)/{1-(1+r)^-n}

Annual payments = ($145,000*0.11)/(1-1.11^-25) = $17,217.34