PMT question

[SMAlvarez]

I need help with the following problem.

"A person is going to buy a house. The cost of the house is $300,000,
and the person is going to make a 15% down payment. The balance will be
financed with a 30-year mortgage at 6% APR, with monthly payments. Using
the PMT function, calculate the amount of the monthly payment, the total
amount paid in 30 years, and the total interest paid."

Ok I think the pmt function is PMT(.06/12,30*12,255,000)

Is that correct?

What does he mean by "Using the PMT function, calculate the amount of
the monthly payment, the total amount paid in 30 years, and the total
interest paid."?

Thanks for any help!!!

 

[joeu2004]

I need help with the following problem.
"A person is going to buy a house. The cost of the house is $300,000,
and the person is going to make a 15% down payment. The balance will be
financed with a 30-year mortgage at 6% APR, with monthly payments. Using
the PMT function, calculate the amount of the monthly payment, the total
amount paid in 30 years, and the total interest paid."

Ok I think the pmt function is PMT(.06/12,30*12,255,000)
Is that correct?

(Typo: Change "255,000" to "255000", which is what you intended.)

Perhaps; perhaps not.

First, change "255,000" to "255000", which I'm sure is what you
intended to write. Just a typo.

The primary issue is with the term "APR". That has a special meaning;
but many people misuse the term. You are assuming that 6% is the
"annual interest rate" (or nominal rate). And that might very well be
what was intended. On the other hand, "APR" might refer to the
effective "annual percentage rate" of the compounded monthly rate. If
that is the intent, ".06/12" should be replaced by RATE(12,0,-1,1+6%).
On the "third hand", for US mortgages, "APR" has a very technical
meaning that goes beyond just "the effective annual percentage rate of
the compounded monthly rate". Since you do not provide (and might not
have) sufficient information to compute the US "truth in lending" APR,
I presume that definition does not apply to this problem. Bottom line:
perhaps you should ask your teacher for clarification about what
he/she means by "6% APR".

If "6% APR" is intended to mean "6% annual interest rate", your formula
is essentially correct (after correcting the typo). But note with
those parameters, PMT will return a negative number -- which some
people will insist is indeed the correct sign of the result. If you
want a positive number (as I prefer), change that last parameter to a
negative number.

What does he mean by "Using the PMT function, calculate the amount of
the monthly payment, the total amount paid in 30 years, and the total
interest paid."?

The total amount paid is 30*12*PMT(...). The total interest paid is
the total amount paid minus the principal (255000).

 

[SMAlvarez]

Ok so the "the monthly payment" is 30*12*PMT(.06/12,30*12,255000)?

and "the total amount paid in 30 years" is $300,000?

and "total interest paid" - whatever 300,000 - 255,000 is?

Is that true?

Thanks for all your help man!.

 

[SMAlvarez]

maybe im wrong. Is the monthly payment whatever the answer is to
PMT(.06/12,30*12,255000)

?

 

[joeu2004]

Ok so the "the monthly payment" is 30*12*PMT(.06/12,30*12,255000)?
and "the total amount paid in 30 years" is $300,000?
and "total interest paid" - whatever 300,000 - 255,000 is?
Is that true?

No.

SMAlvarez wrote later:

maybe im wrong. Is the monthly payment whatever the answer is to
PMT(.06/12,30*12,255000)

Yes, with the caveats that I mentioned in an earlier posting. The
monthly payment is probably either PMT(6%/12,30*12,255000) or
PMT(RATE(12,0,-1,1+6%),30*12,255000), depending on what your teacher
meant by "6% APR". I suspect your teacher did mean "6% annual interest
rate". In that case, your formula is correct. (Note that .06/12 is
the same as 6%/12.)

I had said that 30*12*PMT(...) is the total amount paid in 30 years.
That is very much more than $300,000. Enter the formula
=30*12*PMT(...) into a cell and see the result.

And I said that the "total interest paid" is the "total amount paid"
minus the principal ($255,000). That is =30*12*PMT(...)-255000.

 

[Dana DeLouis]

Hi. Here's what I get. We first note that the loan is 300000*.85 =
255,000.
Total payments are 12*30 = 360.

=PMT(6%/12,360,-Loan)
$1,528.85

Over 30 years, you would have payed:
$1528.85 * 360 = $550,387.38

At the end of 30 years, you paid back the loan...everything else went to
interest.

$550,387.38 - Loan = $295,387.38. (Total Interest)

The total interest after 30 years can be checked with

=CUMIPMT(6%/12,360,Loan,1,360,0)

($295,387.38)

Which checks ok. :>)