Question

Upon graduation, you’ve landed a good long-term job with a major corporation. Your first investment is a house with a total financed cost of $350,000. Since the fixed interest rate is so low for 30-year loans, an amazing 3%/year/month, you decide to pay off the note in 30 years with 360 equal end of month payments. Answer the following questions:

a). What are the monthly mortgage payments for principal and interest?

b).What portion of the 120th payment is interest?

c).What portion of the 120th payment is principal repayment?

d).What is the remaining balance immediately after the 12th year(144thpayment)?

e).If you choose to payoff the loan at t=84, how much must you pay?

Answer 1

a. i = 3% = 3% / 12 = 0.25% per month

Monthly payment = 350000 * (A/P, 0.25%,360) = 350000 * 0.004216 = 1475.61

b. Payments left after 119 payments = 360 - 119 = 241

Loan outstanding after 119 payments = 1475.61 * (P/A, 0.25%,241) = 1475.61 * 180.858767 = 266877.00

interest payment in 120th payment = 266877.00 * 0.0025 = 667.19

c. Principal portion in 120th payment = 1475.61 - 667.19 = 808.42

d. Loan outstanding after 144th payment = 1475.61 * (P/A, 0.25%,(360-144))

= 1475.61 * (P/A, 0.25%,216)

= 1475.61 * 166.743566

= 246048.47

e. total loan outstanding after 83 payments = 1475.61 * (P/A,0.25%,(360-83))

= 1475.61 * (P/A,0.25%,277)

= 1475.61 * 199.697498

= 294675.63

Total amount to be paid at 84th period = 294675.63 * ( 1+ 0.0025) = 294675.63 * 1.0025 = 295412.31

Pls comment if you require further explanation