Math explanation plz?

Question

how to do this problem on Microsoft excel?

if $300000 mortgage
interest rate 6%/a compouded monthly
what is the payment in 25 years? in 15 years?
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im not so good with money...first off...what is mortgage?

Answer 1

A Mortgage is a loan you get (usually from a bank) so that you can afford to buy a house. Few people have enough case to buy a house outright, so they get a mortgage from the bank, who pay for the house, then you pay off the mortgage by paying the bank back slowly over many years. The bank charges interest on this, which means that - if you add up how much you pay them over the years - you pay them more than they paid for the house.

There's a handy webpage calculation here for compound interest. It will tell you (a) how much money you make from an investment at a compound rate of inerest or (b) how much, in total, you will have to pay over the years to pay off a mortgage at a particular interest rate.

Answer 2

The root of mortage is mort, or death. Like mortal, mortuary, etc. The loan is 'put to death' which means that as you pay you decrease the principal so that the mortage is dead at the end. People used to celebrate paying off a mortgage by burning all the papers because they no longer mean anything.

There is no 'closed form' expresson for mortgages. The relationship between

principle
rate
interest
payment

must be determined interatively. Specifiying any 3 allows you to figure out the fourth variable.

The interation is not complicated to do. I've written programs in Basic to do it. It's such a common thing to do that I'd look under the tools, functions in Excel for a function to do it. I'd bet that there's a built in mortgage function.