Question

Problem 1: You just borrowed a 15-year fixed rate loan of $200,000 to buy a two-bed room apartment. Your annual rate of interest is 4%, and the mortgage will be paid annually at the end of each year.

1a. Calculate your annual mortgage payment

Please show all of your work.

Loan amount			Annual Mortgage Payment
Interest rate
number of Years

Answer 1

Annual mortgage payment

Loan Amount (P) = $200,000

Interest Rate (n) = 4.00% per year

Number of years (n) = 15 Years

Therefore, the Monthly Mortgage Payment = [P x {r (1 + r)ⁿ} ] / [(1 + r)ⁿ – 1]

= [$200,000 x {0.04 x (1 + 0.04)¹⁵}] / [(1 + 0.04)¹⁵ – 1]

= [$200,000 x {0.04 x 1.8009435}] / [1.8009435 – 1]

= [$200,000 x 0.0720377] / 0.8009435

= $14,407.55 / 0.8009435

= $17,988.22 per year

“Hence, the annual mortgage payment will be $17,988.22”