Question

2 Q008 Negative Amortization a. Negative amortization occurs when the principal balance on a occurs when the principal balance on a loan (usually a mortgage) increases because the borrower's payments don't cover the total amount of interest that has accrued. des to purchase a house that costs $199.500. The bank requires a 10% downpayment and will provide a 15 year mortgage at a annual interest rate of 6%. The bank tells Mary that her monthly mortgage payments will be $1,510.14 vary decides that that is too much. so the bank offers Marv a lesser monthly payment Amoun form or a negative amortization payment. "pick your navment". Mary can pay as much of asmen vary wants for the first year of the mortgage. Mary decides to pay only $750.75. a month. Calculate the mortgage loan amount, the monthly payment will be is $750.75. Use four 4 decimal places THEN round dollar values to the nearest penny. 3 points b. Create an negative amortization schedule for the first 4 months of Mary's mortgage. 6 points

Answer 1

Answer :

(a) Calculation of Mortgage Loan amount

Cost of House = 199500

Downpayment = 10% Cost of house which will be 199500*10% = 19950

Mortgage Loan Amount by bank = 199500 - 19950 = 179550

(b) Creation of an Negative amortization schedule for the first 4 months of Mary's mortgage

Month	Opening	Installment	Interest	Principal	Closing
1	179550	750.75	897.75	-147	179697
2	179697	750.75	898.485	-147.735	179844.7
3	179844.7	750.75	899.223	-148.473	179993.1
4	179993.1	750.75	899.965	-149.215	179843.8

Interest will be calculated as - opening balance *6/100*1/12

Example for 1st month - 179550*6/100*1/12

=89775*1/12

=897.75

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