Question

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)

Answer 1

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