Question

Robert and Rebecca Richardson have just signed a 15-year, 4% fixed rate mortgage for $200,000 to but their house. Find out this couple's monthly mortgage payment; prepare a loan amortization schedule for Richardson's for the first 3 months; find how much of their payments applied to interest; and after 2 payments, how much of their principal will be reduced ( You may construct a loan amortization schedule and show your calculations).

Answer 1

The monthly mortgage payment on the loan is calculated using the following equation

PMT = Present value of the mortgage 1-(1 + interest rate) -nt interest rate $200.000 1-(1 +004)

Monthly mortgage payment = $1,479.38

Amortization schedule first 3 months
Month	Beginning balance	Monthly payment	Interest	Principal	Ending balance
1	$200,000	$1,479.38	$666.67	$812.71	$199,187.29
2	$199,187.29	$1,479.38	$663.96	$815.42	$198,371.86
3	$198,371.86	$1,479.38	$661.24	$818.14	$197,553.72

In the first month, interest = ( 0.04 $\div$ 12) $\times$ $ 200,000 = $ 666.67

Principal part 1st month = $ 1479.38 - $ 666.67 = $ 812.71

Ending balance 1st month = $ 200,000 - $ 812.71 = $199,187.29

Second month interest = ( 0.04 $\div$ 12) $\times$ $199,187.29 = $ 663.96

Principal second month = $ 1479.38 - $ 663.96 = $ 815.42

Ending balance second month = $199,187.29 - $ 815.42 =  $198,371.86

After 2 months, reduction in principal =  $200,000 - $198,371.86 = $1,628.14