What function would you use to calculate the total interest paid for the first year of a mortgage?

Solution:

The formula M = [P.r (1+r)ⁿ] / [(1+r)ⁿ-1] can be used where, ‘M’ is the monthly mortgage payment, ‘P’ is the principal amount, ‘r’ is the interest rate and ‘n’ is the number of monthly payments.

Example:

Let us consider that a person X takes Rs.30,00,000 loan at a fixed interest rate of 6% to buy a home. Let the repayment time period of the loan be 25 years.

Here, P = Rs.30,00,000, monthly interest rate r = 0.06/12 = 0.005, n = 25 × 12= 300

M = [P. r (1+r)ⁿ] / [(1+r)ⁿ-1]

= [3000000× 0.005 (1 + 0.005)³⁰⁰]/ [(1+0.005)³⁰⁰-1]

= 19329.04

Mortgage amount paid per month = Rs. 19329.04

Mortgage amount paid per year = Rs. 19329.04 × 12 = Rs. 231948.5

What function would you use to calculate the total interest paid for the first year of a mortgage?

Summary:

To calculate the total interest paid for the first year of a mortgage, the formula M = [P.r (1+r)ⁿ] / [(1+r)ⁿ-1] × 12 can be used.