Question

Buying a house:

Purchase Price = $100,000

Loan to Value Ratio = 75%

Interest Rate = 6%

Term = 30 years

1.) What is the numerator of the mortgage constant equal to?

2.) What is the monthly mortgage constant equal to?

3.) What is the monthly payment equal to?

4.) How much interest do you pay in the second month?

5.) What is the percentage of the mortgage paid off after 5 years?

Answer 1

1. Purchase price = $100,000

LTV ratio is 75%, which means Loan ior mortgage is 75% of 100,000 = $75,000

Numerator of the mortgage constant is equal to $75,000

2. mortgage constant for 30 years of 360 months = $75000

Monthly mortgage constant is 75000 / 360 = $208.33

3. Monthly payment

Let us calculate monthly interest

Annual interest = 75000 x 6/100 = $4500

monthly interest at begiinning = 4500 / 12 = $375

using the formula for monthly payment (75000 x ,06 / 12) x ) / -1

monthly payment is $449.66

4. 1st month interest is 375 so the payment on principal in 1st month is 449.66 - 375 = $74.66

Principal balance at the end of 1st month = 75000 - 74.66 = $74925.34

2nd month interest payment of 6% on 74825.34 = (74835.34 x 6 / 100) / 12 = 4495.52 / 12 = $374.63