Question

You borrow $125,000 to buy a house. Your mortgage rate is 6% per year (0.5% per month).

The term of the mortgage is 30 years and you will have the same required payment every month. Ignore taxes.

(i) What is your monthly mortgage payment?

(ii) After 30 months of payments, what is the remaining balance on your mortgage?

(iii) For the first 30 months you make the required payment. Beginning in the 31st month you pay an extra $100 per month

every month (you pay the required payment plus $100). These extra payments will shorten the life of your mortgage.

How long will it take to pay off the mortgage?

Answer 1

if simple interest is followed then S.I= principal X rate X years/100= $125000 X 6 X 30/100= $225000(total interest for 30 years)

1. monthly mortgage payment = $125000+$225000/360(toal no. of months in 30 years)= $972(approx.)

2. total amount due = $350000 (principal + interest) , then after 30 months the amount due will be $350000- (972 x 30)= $320840(approx.)

3. If from 31 month the amount of monthly payment is increased by $100, then total amount of monthly payment will be $1072 and the due amount after 30 months is $320840 , then resultant period to pay this amount will be 320840/1072=299.29 or 300 months means the mortage term is reduced by 30 months or 2 and half years. The mortgage will be paid in 25 years , 2 and half years earlier what it used to be.