You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 9.1 percent APR for this 360-month loan. However, you can afford monthly payments of only $950, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.
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How large will this balloon payment have to be for you to keep your monthly payments at $950? |
Could you please solve this by showing process clearly with explanation ( NOT IN EXCEL ) . Would be great if you could solve this by using financial calculator . I am totally new to this balloon payment thing so don't know if we can use financial calculator to solve for or not . Appreciate it.
PV of new home =240000
Rate per month =9.1%/12
Number of Months =360
Balloon payment at the end of 360 months
=PV*(1+r)^n-PMT*((1+r)^n-1)/r)
=240000*(1+9.1%/12)^360-950*((1+9.1%/12)^360-1)/(9.1%/12))
=1866320.34
FV of new Home using Financial calculator
I/Y =9.1%/12;N=360;PV=-240000;CPT FV =3642187.38
FV of monthly
payment using Financial calculator
I/Y =9.1%/12;N=360;PMT=-950;CPT FV =1775867.04
Balloon payment at the end of 360 months =3642187.38-1775867.04
=1866320.34
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