Question

Professor Cole bought an investment property for $400,000. He took out a standard 30 year fixed mortgage for $270000 at a nominal rate of 4.625% per year, with uniform monthly payments starting one month from the date of closing. He paid all of the loans closing costs.

a.) What were his monthly mortgage payments?

b.) Exactly 5 years to the day he sold the property for $475,000.
Assuming that he had already made his mortgage payment that day
what was the remaining balance of the mortgage?

c.) How much of his final payment was interest?

d.) How much of his final payment went toward principle?

(note his final payment was his 60th payment, because he sold the
property after 5 years)

*Posting this for the second time*

Answer #1

There is a standard 30 year fixed mortgage for $270000 at a nominal rate of 4.625% per year. Monthly rate = 4.625%/12 = 0.38542%

a) Monthly mortage = 270000(A/P, 0.38542%, 360) = 270000*0.00514140 = $1388.20 (actual payment = $1388.177)

b) Balance in the loan account = A(P/A, 0.38542%, 360 - 60) = 1388.177*177.635267 = $246,589

c) Interest = A(P/A, i, N – n + 1)i = 1388.177(P/A, 0.38542%, 360 - 60 + 1) = 1388.177*177.949421*0.38542% = $952.10

d) Principal payment at n is Pn = A(P/F, i, N – n + 1) = 1388.177(P/F, 0.38542%, 360 - 60 + 1) = 1388.177*0.314153 = $436.10

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