Question

You've just taken on a 20​-year, ​$150,000 mortgage with a quoted interest rate of 6 percent calling for payments semiannually. How much of your first​ year's loan payments​ (the initial two​ payments, with the first coming after 6 months have​ passed, and the second one coming at the end of the first​ year) goes toward paying interest​, rather than​ principal?

Answer 1

First we need to calculate the semi-annual payment

No of periods = 20*2 = 40

PV = $150,000

Rate per period = 6%/2 = 3%

Using PMT function in excel:

Payment =PMT(3%,40,-150000,0) = $6489.36

Interest paid in first payment = 0.03*150000 = $4500

Principal repaid in 1st payment = 6489.36 - 4500 = $1989.36

Outstanding balance after first payment = 150000 - 1989.36 = $148,010.64

Interest paid in second payment = 0.03 * $148,010.64 = $4440.32

Total interest paid in first year's loan payments = $4500 + $4440.32 = $8,940.32