Question

Daniel and Jan agreed to pay $553,000 for a four-bedroom colonial home in Waltham, Massachusetts, with a $70,000 down payment. They have a 30-year mortgage at a fixed rate of 6.00%.

a.

How much is their monthly payment? (Do not round intermediate calculations. Round your answer to the nearest cent.)

b.	After the first payment, what would be the balance of the principal? (Do not round intermediate calculations. Round your answers to the nearest cent.)Payment number Portion to—   Balance of loan outstanding    Interest     Principal

Answer 1

Answer a.

Cost of Home = $553,000
Down Payment = $70,000

Amount Borrowed = $553,000 - $70,000
Amount Borrowed = $483,000

Annual Interest Rate = 6.0%
Monthly Interest Rate = 6.0%/12 = 0.5%

Period of Loan = 30 years or 360 months

Monthly Payment * PVIFA(0.5%, 360) = $483,000
Monthly Payment * (1 - (1/1.005)^360) / 0.005 = $483,000
Monthly Payment * 166.7916 = $483,000
Monthly Payment = $2,895.83

Answer b.

First Payment:

Monthly Payment = $2,895.83

Interest Expense = $483,000 * 0.5%
Interest Expense = $2,415

Principal repaid = $2,895.83 - $2,415
Principal repaid = $480.83

Balance of loan outstanding = $483,000 - $480.83
Balance of loan outstanding = $482,519.17