Question

Using P(A, r, t)= A*((r/12)/(1-(1+(r/12))^-12t)):

Originally:

A=$290,000

r=3.75%

t=30 years

Monthly payment=$1,343.04

Use differentials to estimate the change in monthly payment and determine the actual change in monthly payment if:

a. the loan amount decreases to $275,000

b. the rate decreases to 3.5%

c. the number of years decreases to 28

Assuming that all three changes happened simultaneously

Answer 1

As per excel PMT function revised monthly instalment has been derived.

Where variable Rate = 3.5%/12

nper = 28*12 = 336

pv = 275000

and instalment paymenthas been made at the end of the period.

Revised monthly payment = $1285.07

Reduction in EMI = $57.97