Question

1. If you were going to buy your home from Mrs. Beach for $200,000 with a 10% down payment, 15 year mortgage and an interest rate of 5%.

1. How much would your payments be each month?

2. What would be the principal and interest payment on the first payment?

3. What would be the principal and interest payment on the twelfth payment?

4. What type of a problem is this? ___________

(show all work)

Answer 1

a.

Loan Amount = 200,000(1 - 0.10) = $180,000

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 180,000, FV = 0, N = 180, I = 0.05/12]

PMT = $1,423.43

b.

Interest Payment in 1st payment = (0.05/12)(180,000) = $750.00

Princiapl Payment in 1st payment = 1,423.43 - 750 = $673.43

c.

Calculating Loan Balance after 11th payment,

Using TVM Calculation,

FV = [PV = 180,000, PMT = -1,423.43, N = 11, I = 0.05/12]

FV = $172,436.00

Interest Payment in 12th Payment = (0.05/12)(172,436.00) = $718.48

Principal Payment in 12th Payment = 1,423.43 - 718.48 = $704.95