Question

Suppose you take out a 30 year mortgage for $100000 with annual payments. The interest rate on the mortgage is 8%. when you have paid off half the mortgage, so that the value if the remaining payments is reduced to $50,000, how many more payments need to be made?

a- approx 12
b- approx 8
c- approx 20
d- approx 15

Answer 1

Mortgage Amount = $100,000

Interest Rate = 8%

Time = 30 years

Calculating Annual Payment,

Using TVM Caculation,

PMT = [PV = 100000, T = 30, FV = 0, I = 0.08]

PMT = $8,882.74

So,

Annual Payment = $8,882.74

Loan Balance = $50,000

Calculating Time for Repayment,

Using TVM Calculation,

T = [PV = 50,000, PMT = -8882.74, FV = 0, I = 0.08]

T = ~8 years

So,

Time for Repayment = Approx 8 years