Home / Money Blog

Flexible Rate

10bii icon
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can get our 10bii Financial Calculator for iOS, Android, Mac, and Windows!
Photo by FOX from Pexels
THE SCENARIO Last time, we discussed how long it would take to pay off a $100,000 mortgage at 6% if we could only afford a $475 monthly payment. Let's say, however, that we managed to find a 40-year fully-amortizing loan for $100,000 that has a $475 per month payment. The question: What's the interest rate on that loan?
THE SOLUTION This one is pretty straightforward. First things first, make sure the calculator is using 12 Payments per Year. N: 480 (The loan is for 40 years, which is 40 x 12 = 480 months) I/YR: (This is what I'm trying to find) PV: 100,000 (The amount borrowed is $100,000) PMT: -475 (The monthly payment is $475) FV: 0 (The loan amortizes fully)

This loan would have an interest rate of 4.89%.

Last time, the situation seemed hopeless - there was no way to pay off the loan! But keep in mind when looking at potential deals that there are often additional variables - in this case, the interest rate of the loan. If you can't make it work at 6%, maybe it'll work at 5%, 4% or lower.

What do you think? Does this answer surprise you? Why or why not? Let us know in the comments!