Question

# A borrower obtains a fully amortizing constant payment mortgage loan for \$75,000 at 12 percent for...

A borrower obtains a fully amortizing constant payment mortgage loan for \$75,000 at 12 percent for 3 years. Payments are monthly. What will be the amount of remaining balance at the end of the second month? (Answer is rounded)

The formula to find the monthly payment=loan amount*interest rate*(1+interest rate)^n/[((1+interest rate)^n)-1]

interest rate=monthly interest rate=12%/12=1%

n=total number of periods=3*12=36

monthly payment=75000*1%*(1+1%)^36/[((1+1%)^36)-1]

=75000*1%*1.430769/0.430769

=2491.1

The formulas and outstanding balance after 2nd montly payment is given below.

The end of the second month outstanding=\$71,500.4

 Periods Opening balance Monthly payment Interest=(Opening balance*(12%/12)) Principal=monthly payment-Interest Ending balance=Opening balance-principal 1 75000.0 2491.1 750.0 1741.1 73258.9 2 73258.9 2491.1 732.6 1758.5 71500.4

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