Question

Consider a home mortgage of ?$ 150000 at a fixed APR of 4.5?% for 30 years. a. Calculate the monthly payment. b. Determine the total amount paid over the term of the loan. c. Of the total amount? paid, what percentage is paid toward the principal and what percentage is paid for interest.

Answer 1

The formula for computing the fixed monthly payment towards amortization of a mortgage loan of $ L is

P = L[r(1 + r)ⁿ]/[(1 + r)ⁿ - 1] where r is the rate of interest per period and n is the no. of periods.

Here, r = 4.5/1200= 0.00375 and n = 30*12 = 360.

1. We have P = 150000*0.00375(1.00375)³⁶⁰/[(1.00375)³⁶⁰ -1] = 562.50 *3.84769805/2.84769805 = $ 760.03 ( on rounding off to the nearest cent).
2. The total amount paid over the term of the loan = 360*$ 760.03 = $ 273610.80.
3. The principal amount paid is ?$ 150000 i.e. 54.82 % of the total amount paid. The interest paid is $ 273610.80- $ 150000 = $ 123610.80 i.e. 45.18 % of the total amount paid.