Question

Suppose a studio apartment costs $250,000. You put down 20% in cash, taking out the remaining with a 30-year mortgage from a local bank. The quoted annual interest rate is 12%

1) How much is your monthly loan payment  and what is the EAR on the loan?

2) After 10 years, how much is the remaining balance of the loan principal ?

3) How much total interest will you pay over 30 years?

Answer 1

1) Monthly loan payment can be calculated using PMT function in excel or calculator

N = 30 x 12 = 360, PV = 250,000 x (1 - 20%) = 200,000, FV = 0, I/Y= 12%/12 = 1%

=> Compute PMT = $2,057.23

EAR = (1 + 1%)^12 - 1 = 12.68%

2) Principal paid over 10 years can be calculated using CUMPRINC function in excel

CUMPRINC(1%, 360, 200000, 1, 120, 0) = $13,164.01

Balance amount = 200,000 - 13,164.01 = $186,836

3) Total Interest Paid = 2,057.23 x 360 - 200,000 = $540,601.07