Question

Joe negotiates a $65,000 mortgage on a house with monthly payments of $500 for the first year, $600 for the second year, and $700 until the final payment. The first payment is due one month after the loan. The annual interest rate is 12% convertible monthly. Find the outstanding balance to the nearest $500 on Joe’s mortgage immediately after the 36th payment.

The answer is 67,495.935, but I'm not sure how to get there.

Answer 1

Answer given here is wrong, your total loan is 65000, outstanding balance can never be more than initial loan amount. it will always be less than initial loan amount as you are making regular payments. If you don't make any payments then only can outstanding balance be more than loan amount

Outstanding balance = 65000 - 500 * (P/A, 1%,12) - 600 * (P/A, 1%,12) * (P/F, 1%,12) - 700 *(P/A, 1%,12) * (P/F, 1%,24)

= 65000 - 500 * 11.255077 - 600 * 11.255077 * 0.887449 - 700 * 11.255077 * 0.787566

= 47174.60 ~ 47000 (Nearest 500)