Math help- Desperate! :(

OK... So I have a math problem I have been struggling with for literally 4 days. Maybe SOMEONE can help!!!

The price of a home is $80,000. The bank requires a 10% down payment. The cost of the home is financed with a 15 year fixed-rate mortgage at 4%. Find the monthly payment.

I know the down payment is $8,000, which leaves $72,000 to be mortgaged/financed. 4 % interest becomes .04.

It is a monthly payment over 15 years, so that means there is a total of 180 payments (12 x 15)

Problem is, in working everything out, I get $416 as the monthly payment, the answer though is $532.58 (it is in the back of the book, I just have to "show my work for credit" .

Can anyone help me??

Thank you so much!!!!

Mel

It is because of the amortization schedule used for mortgages. 

You can go here, plug in the $72k, 180 months, and 4%, at the bottom click show full amortization schedule and get a list of all the payments. 

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?MSA=3600&MSA=3600&MSA=3600

It is because it is compound interest - the way you have worked it out is for a 4% interest charge on the $72,000 at the beginning of the loan, it doesn't take into account the fact you are paying interest for 15 years not just paying the money back over 15 years.

I did a quick google for an explanation - maybe try this website: http://www.mathsisfun.com/money/compound-interest.html

Good luck.

The interest is 4% per year, not over the life of the loan. Not sure if that's how you figured it or not.

And as the principal goes down, so does the interest amount, becase the interest is based on the remaining balance. So even thought the payments will be the same every month for the life of the loan (unless you refinance), at first the majority of the payment will go to interest, and later on more will go to principal.

 

Loan management

Loan payment schedule

This link shows you how to manually calculate a mortgage payment

http://homeguides.sfgate.com/calculate-payments-fixed-rate-mortgage-2963.html

http://homeguides.sfgate.com/manually-calculate-house-payments-9633.html

The folks above have explained this much better than I possibly could.  I just wanted to see how you are doing and wish you a quick recovery.