Question

2. An investor buys a piece of land for $250,000 by putting 20% down and financing the rest for 15 years at a rate of 3.5% a year. What are the monthly payments? How much interest is paid over the first 90 months? How much interest is paid over the last 90 months? Why are the amounts different?

Answer 1

Loan Amount = 0.80(250,000) = $200,000

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 200,000, FV = 0, N = 180, I = 0.035/12]

PMT = $1,429.77

Calculating Loan Amount at the end of 90 months,

FV = [PV = 200,000, PMT = -1,429.77, N = 90, I = 0.035/12]

FV = $113,030.87

Interest Paid in first 90 months = 90(1,429.77) - (200,000 - 113,030.87) = $41,710.17

Interest Paid in last 90 months = 90(1,429.77) - 113,030.87 = $15,648.43