Will has a 25-year mortgage on a $140,000 loan for his house in Florida. The interest...
Will has a 25-year mortgage on a $140,000 loan for his house in Florida. The interest rate on the loan is 4.8% per year (nominal interest), payable monthly at 0.4% per month.
a. What is Will's monthly payment?
b. If Will doubles his payment from Part (a), when will the loan be completely repaid?
Homework Answers
a) Monthly payment = 140,000 x (A/P, 0.4%, 25*12)
= 140,000 * (0.4%*1.004^300) / (1.004^300-1)
= $802.20
b) Now payment is doubled to $1604.39.
Required time is found using interpolation
140,000 x (A/P, 0.4%, n) - 1604.39 = 0
For n = 107, NPV is 6.5 and for n = 108 NPV is -5.44
Hence, if Will doubles his payment from $802.20, the loan will be completely repaid within 107 months
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