Question

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?

Answer 1

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