Question

Consider a 20-year mortgage for $350,000 is taken out in Jan. 2019 at a 5.40% annual interest rate.

    a. What is the Payment Amount for this mortgage?  (2)

    b. What total amount will be paid by the borrower over the 20-year payback period? (2)

    c. What is the Interest / Principle breakdown for payment #5?  (2)

Answer 1

Payment is calculated on a monthly basis.

A.

Time = 20*12 = 240 months

Monthly rate R = 5.4%/12 = .45%

Let, monthly payment = P

Then,

350000 = P*(1-1/(1+.45%)^240)/.45%

350000 = P*146.5735

P = 350000/146.5735

P = $2387.88 or $2388

So, monthly payment is 2388.

B.

Total payment = 2388*240

Total payment = $573120

C.

Interest payment for payment no. 5 = IPMT(0.45%, 5, 240, -350000)

Interest payment for payment no. 5 = $1560.27

Principal payment for payment no. 5 = 2388-1560.27

Principal payment for payment no. 5 = $827.73