A real estate developer can afford no more than $500 per month in principal and interest payments. The most favorable loans available in the market are 1) a 10-year partially amortizing loan with an anual rate of 8% with 20,000 balloon payment and 2) a 10-year interest only loan with an annual rate of 9%. What is the maximum affordable purchase price with a 20% down payment?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.