Question

This is my third hard questions about financial accounting

The business owners, Jame claimed to have enough money and then he decided to buy a house, purchases will take out a $300,000 mortgage for 40 years at 8%, compounded monthly.

a/ How much is ’s Jame monthly mortgage payment?

b/ How much sooner would Jame pay off his mortgage if he made an additional $200 payment each month?

Answer 1

a)

Loan amount (P)= 300000

Interest rate per month (r)= 8/12 = 0.667%

Time period (n) = 40*12 = 480 months

The monthly payment, = P*r* (1+r)^n / [(1+r)^n - 1]

= 300000 * 0.00667* (1.00667)^480 / (1.00667)^480 - 1

= 2086 $

Aletrnatively we can us ethe PMT function in excel,

PMT(rate, nper, pv,fv)

PMT( 0.667%,480,-300000,0) =2086

b)

Monthly payment = 2086 + 200 = 2286

Again , The monthly payment, = P*r* (1+r)^n / [(1+r)^n - 1]

2286  = 300000 * 0.00667* (1.00667)^n / (1.00667)^n - 1

Solving for n, n = 313.86 or 313 months

Aletrnatively we can us ethe NPER function in excel,

NPER(rate, pmt, pv,fv)

NPER( 0.6667%,2286,-300000,0) = 312.86 or 313 months

So he would pay off the mortgage (480 -313)= 167 months or 13years 11 months earlier