Question

You need a 20-year, fixed-rate mortgage to buy a new home for $230,000. Your mortgage bank will lend you the money at a 8.1 percent APR for this 240-month loan. However, you can afford monthly payments of only $850, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

Required:

How large will this balloon payment have to be for you to keep your monthly payments at $850?

Multiple Choice

• $629,497.93

• $648,966.94

• $674,925.61

• $129,130.66

• $114,603.69

Answer 1

Loan Amount = $230,000

Monthly Payment you can afford = $850

Monthly Interest rate = APR/12 = 8.1%/12 = 0.6750%

Calculating the balloon paymnet required at the end of the loan period using Excel "Future Value" function:-

So, Balloon Paymnet at the end of Loan period is $648,966.94

Option 2