Question 1201425: Suppose you take out a mortgage for $300000 at 6.5% interest per year compounded annually. If your mortgage is amortized over 10 years, what is your monthly mortgage payment. How much interest will you pay the lender by the end of the mortgage?
What is the monthly interest rate corresponding to the effective annual rate
What are the monthly payments
What is the total interest paid?
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! this is not usually done.
if you have monthly payments, the interest rate is usually compounded monthly.
in that case, the monthly interest rate would be 6.5 / 12 = .541666667%
if the interest rate is compounded annually, then the monthly interest rate would be equal to 1.065 ^ (1/12) = 1.005261694 - 1 = .005261694 * 100 = .5261694%.
this makes a difference in what the monthly payments would be.
with monthly compounding, the payments at the end of each month would be equal to 3406.44.
the total interest paid would be equal to 120 * 3406.44 - 300,000 = 108,772.8.
with annual compounding, the payments at the end of each month would be equal to 3378.12.
the total interest paid would be equal to 120 * 3378.12 - 300,000 = 105,374.4.
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