Question

Sarah secured a bank loan of $195,000 for the purchase of a house. The mortgage is to be amortized through monthly payments for a term of 15 years, with an interest rate of 3%/year compounded monthly on the unpaid balance. She plans to sell her house in 10 years. How much will Sarah still owe on her house at that time? (Round your answer to the nearest cent.)

Answer 1

Information provided:

Present value= $195,000

Time= 15 years*12= 180 months

Interest rate= 3%/12= 0.25% per month

The question is solved by first calculating the monthly payment.

The monthly payment is calculated by entering the below in a financial calculator:

PV= -195,000

N= 180

I/Y= 0.25

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 1,3466.63.

Therefore, the monthly payment is $1,3466.63.

Balance owed by Sarah on the house in 10 years= $195,000 - ($1,3466.63*10*12)

  = $195,000 - $161,596.10

  = $33,403.90.