Question

Consider a partially amortizing mortgage in the amount of $80,000 for a term of 10 years. The borrower and lender agree that a balance of $40,000 will remain and be repaid as a lump sum at that time. a. If the interest rate is five percent (5%), what must monthly payments be over the 10-year period?b. What will the loan balance be after 5 years?

Answer 1

Since the partially amortizing mortgage Loan is repayable in 10 years with the amount $40,000 payable at once as lump sum by the end of 10^th year.

Hence, the amortization schedule will be made for $80,000 - $40,000 = $40,000

Interest rate = 5%

Monthly payments can be calculated by using the formula:

A = P x R(R+1) ^n/ (1+r) ^n – 1
where;

• A = payment Amount per period
• P = initial Principal (loan amount)
• r = interest rate per period
• n = total number of payments or periods
  1. Using the above formula, the monthly payments on $40,000 Loan would be: $424.25
  2. Loan Balance (upon $40,000) after 5 years = $22,151