Apparently, a $100,000 loan with an interest rate of 5 percent and a 30-year term carries a payment of $537 a month.
Why? I've fiddled with the numbers in various ways and can't get $537. For instance, ($100,000 * 1.05) / 30 / 12 = $292 a month.
Asked
Active
Viewed 523 times
2 Answers
10
Using formula
r = 0.05/12
n = 30*12
s = 100000
(r s)/(1 - (1 + r)^-n) = 536.822
Chris Degnen
- 9,797
- 1
- 20
- 36
10
Apparently, a $100,000 loan with an interest rate of 5 percent and a 30-year term carries a payment of $537 a month.
Why? I've fiddled with the numbers in various ways and can't get $537. For instance, ($100,000 * 1.05) / 30 / 12 = $292 a month.
The biggest error in your formula is that you assumed that the total interest for the loan would be 100,000*0.05 or $5,000; but that is closer to the interest for the first year. Your formula spread the payment of the first years interest over the 30 years; and then assumed no interest would be charged for the next 29 years.
mhoran_psprep
- 139,546
- 15
- 193
- 389