Question

You are offered a 30-year fixed-rate mortgage on your dream home costing $350,000 at an APR of 6% compounded monthly. You will make 360 monthly payments, but your first payment will not be due until Month 4 (Months 1-3 are part of a grace period where interest is still compounded but no payments are due). The final payment will therefore be due at the end of Month 363.

a) What will be the value of your equal monthly payments (don't forget to factor in the grace period).

b) For the 260th payment (which occurs in Month 263), determine how much of the payment goes to interest and how much to principal.

Answer 1

Loan amount = $ 350,000

Interest rate = 6/12% = 0.5% per month

After 3 months loan = 350,000 (F/P,6/12%,3)

= 350,00)×1.005^3 = $ 355,276.29

Number of payments = 360

A. Let us assume the monthly payment is $ A

b. After the 259th payment loan outstanding will be

Interest paid in 260th payment = 0.005 × 168587.7376

Interest = $ 842.94

Principal paid = 2130.06 - 842.94 = $ 1287.12

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