Question

Consider a 30 year mortgage for $300,000 at 12%. Below is one line taken out of the loan's amortization table, however, one entry may be incorrect, which one is wrong? (Assume that the beginning balance and payment numbers are correct.) Pmt #: May 2020; Beg. Balance: $173,180.00; Pmt: $3,085.84; Interest: $1,731.80;Principle: $1,354.04; Ending Balance: $171,825.96.

Answer 1

Solution :-

The Time of loan = 30 year = 30 * 12 = 360 pmt

Rate of Interest = 12% / 12 = 1%

Amount of Loan = $300,000

Installment amount = $300,000 / PVAF(1% , 360)

PVAF(1% , 360) = [ 1 - ( 1 + r )^-n ] / ( r )  

= [ 1 - ( 1 + 0.01 )^-360 ] / 0.01

= [ 1 - 0.027817 ] / 0.01

= 97.218

Installment amount = $300,000 / PVAF(1% , 360)

Installment amount = $300,000 / 97.218

Installment = 3,085.84

Opening Balance = $173,180.00

Interest Payment = (1% of OB ) = 1% * $173,180 = $1,731.80

Principal Repayment = Installment - Interest Payment = $3085.84 - $1,731.80 = $1,354.04

Ending Balance = $173,180 - $1,354.04 = $173,825.96

As you see the Closing Balance is $173,825.96 but in the Question the figure given is  $171,825.96.

So this is the mistake .