What is the monthly payment for principal and interest in Henry's loan?

What is the monthly payment for principal and interest in Henry's loan?

• A. $600.50
• B. $750.00
• C. $680.40
• D. $663.81

Answer: (D)

Monthly payment for principal and interest on a fixed-rate loan comes from the amortization formula that produces a single level payment over the term of the loan. You need the loan amount (P), the monthly interest rate (r), and the total number of payments (n). Convert the annual rate to a monthly rate by dividing by 12 and convert the term to the total number of monthly payments (n = years × 12). Then calculate M = P × [r(1+r)^n] / [(1+r)^n − 1]. This gives the amount that goes to both reducing the balance and paying interest each month, staying the same throughout the term. For Henry’s loan, this calculation yields a monthly principal-and-interest payment of 663.81. This amount reflects only the loan’s P&I and doesn’t include taxes, insurance, or any escrow items unless those are specifically included in the loan terms. If the rate were higher, the term shorter, or the loan amount larger, the monthly payment would be higher; if the rate were lower, the term longer, or the loan amount smaller, the payment would be lower.

Monthly payment for principal and interest on a fixed-rate loan comes from the amortization formula that produces a single level payment over the term of the loan. You need the loan amount (P), the monthly interest rate (r), and the total number of payments (n). Convert the annual rate to a monthly rate by dividing by 12 and convert the term to the total number of monthly payments (n = years × 12). Then calculate M = P × [r(1+r)^n] / [(1+r)^n − 1]. This gives the amount that goes to both reducing the balance and paying interest each month, staying the same throughout the term.

For Henry’s loan, this calculation yields a monthly principal-and-interest payment of 663.81. This amount reflects only the loan’s P&I and doesn’t include taxes, insurance, or any escrow items unless those are specifically included in the loan terms. If the rate were higher, the term shorter, or the loan amount larger, the monthly payment would be higher; if the rate were lower, the term longer, or the loan amount smaller, the payment would be lower.