Nalu and Kamaile take-out a mortgage in the amount of $260000 to purchase an apartment as their principal place of residence. They are able to obtain a 15-year mortgage at a fixed rate of 6%. Below, you will be asked for the amount of their monthly payment and for a aggregated amount of interest that they paid.
Clearly, this is a TVM (time value of money) problem, so get started by completing the table of "TVM Basic Data"
c | n | i | pv | pmt | fv |
---|---|---|---|---|---|
Which TVM Factor must be used to solve this problem?
Present value of 1
Present value of an ordinary annuity of 1
Present value of an annuity due of 1
Future value of 1
Future value of an ordinary annuity of 1
Future value of an annuity due of 1
What is the value of that factor?
What is their monthly payment?
The (dollar) amount of interest paid on a mortgage annuity for a principal residence is tax-deductible. Suppose that their mortgage annuity was issued on November 1. In order to determine the amount of their interest deduction, write-out the first two lines of the amortization table of their mortgage annuity. Include dollar signs only for amounts in the first row (n = 1) For rows below the first, do not include dollar signs.
n | Outstanding Principal | INTEREST Amount | Excess PMT |
---|---|---|---|
1 | |||
2 |
What is there deduction for interest for this mortgage annuity in the year that it was issued?
As per rules I am answering the first 4 subparts of the question
1: c= 12
N = 15
I=6
Pv = 260000
FV = 0
PMT = ?
2: Present value of an ordinary annuity of 1
This problem involves calculation of the annuity which is the monthly payment for a loan of 260000 which represents the present value of the annuity.
3: Value of the factor = (1-1/(1+rate)^number of terms)/rate
=1 divided by (1-1/(1+0.06/12)^(15*12))/ (0.06/12)
=1/118.5035
=0.008439
4: Monthly payment = PV * Value of the factor
= 260000*0.008439
= 2194.14
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