Question

1. Amortization: Barney and Betty buy a house for $450,000. They pay 15% down and finance the rest at 4.35% using a 20-year mortgage.
   • How much money are they putting down?
   • What is their monthly mortgage payment?
   • How much interest will they have paid in the first 10-years of owning the house?
   • How much principal will they have paid in the first 10-years of owning the house?
   • at the end of 10 years what is their remaining balance?

Answer 1

Purchase Price = $ 450000, Downpayment = 15 % of Purchase Price = 0.15 x 450000 = $ 67500, Interest Rate = 4.35 % payable monthly, Tenure = 20 years or (20 x 12) = 240months

Applicable Monthly Rate = 4.35 / 12 = 0.3625 % and Borrowing = 450000 - 67500 = $ 382500

Let the monthly mortgage payments be $ K

Therefore, 382500 = K x (1/0.003625) x [1-{1/(1.003625)^(240)}]

382500 = K x 160.10728

K = 382500 / 160.10728 = $2389.02316 ~ $ 2389.02

Remaining Balance at the end of 10 Years = Total Present Value of Remaining Monthly Payments = 2389.02 x (1/0.003625) x [1-{1/(1.003625)^(120)}] = $ 232131.3531 ~ $ 232131.35

Principal Paid in 10 Years = 382500 - 232131.35 = $ 150368.65

Interest Paid in 10 Years = 120 x 2389.02 - 150368.65 = $ 136314.13