Question

This extended problem covers many of the features of a mortgage. You purchase a town house for $300,000. Since you are able to make a down payment of 20 percent ($60,000), you are able to obtain a $240,000 mortgage loan for 20 years at a 4 percent annual rate of interest.

a. What are the annual payments that cover the interest and principal repayment?

b. How much of the first payment goes to cover the interest?

c. How much of the loan is paid off during the first year?

d. What is the interest payment during the second year?

e. What is the remaining balance after the second year?

Answer 1

Ans

Ans a)	17659.62
Ans b)	$9,600.00
Ans c)	$8,059.62
Ans d)	$9,277.62
Ans e)	$223,558.38

		P =	Regular Payments
		PV =	Loan Amount
		r =	rate of interest
		n =	no of periods
		P =	r (PV)
			1 - (1 + r )-n
		P =	(4.00%)*240000
			1 - (1 / (1 + 4.00%)^20))
		P =	9600
			0.543613054
		P =	17659.62
	Beginning Balance	Interest	Principal	Ending Balance
1	$240,000.00	$9,600.00	$8,059.62	$231,940.38
2	$231,940.38	$9,277.62	$8,382.00	$223,558.38