The Investment Formula
The Mortgage Formula
The mortgage formula is used when a person wants to borrow a single amount of money and pay it off (normally monthly) over a certain amount of time at a fixed interest rate. Like with all things, we will remember and understand this formula better if we derived it in a logical way so that the formula makes sense to us.
• When a bank lends us money, it is to the bank the same as investing that amount of money into an interest baring account. It is therefore helpful to think of the interest formula [pic] when thinking about the worth of the amount of money that we borrow. j is a monthly interest rate in this instance and n the number of months of the loan.
• When we start paying back the loan to the bank, it is the same as making a monthly investment into an annuity. It is therefore useful to remember the formula for annuities [pic].
• At the end of this loan, the above two amounts must be equal and so we derive the mortgage formula from the above two formulae i.e. [pic] which gives [pic] and [pic] is then the monthly amount that needs to be repaid on the mortgage or loan.
Therefore the mortgage formula for a principal P, an interest rate j and a term n is [pic].
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
Related searches
- what is the correct formula for photosynthesis
- return on investment formula excel
- what is the chemical formula for photosynthesis
- the chemical formula for photosynthesis
- the photosynthesis formula in words
- what is the distance formula calculator
- what is the excel formula for percentages
- the efc formula 2019 2020
- the efc formula 2020 21
- the efc formula 2018 2019
- what is the investment model
- find the empirical formula calculator