Question

Pey Soon has taken out a 20 year $150 000 mortgage with monthly payments ( Made at the end of each month) at a stated mortgage rate of 6.8 % per year compounded semi annually. If she makes each payment on time, what will be the mortgage principal remaining after 10 years?

Answer 1

Answer:

Interest rate = 6.8% per year compounded semi annually

Hence:

Effective annual rate = (1 + 6.8% / 2) ² - 1

= 6.9156%

Monthly compounded rate will be = (1 + 6.9156%) ^1/12 - 1

= 0.55880177%

Monthly Payment = PMT(rate, nper, pv, fv, type)

Loan duration = 20 years = 240 months

= PMT (0.55880177%, 240, -150000, 0, 0)

=$1136.5918

Monthly Payment = $1,136.5918

Mortgage outstanding at the end of 10 years is equal to present value (at the end year 10) of all remaining future monthly payments.

At the end of 10 years number of remaining future monthly payments = 120 months

Mortgage outstanding at the end of 10 years = PV (rate, nper, pmt, fv, type)

= PV (0.55880177%, 120, -1136.5918, 0, 0)

= $99181.65

Mortgage principal remaining after 10 years = $99,181.65