Question

Consider a $2 million, 8%, 30-year mortgage with monthly payments. Compute the first three payments and the loan balance after the third payment for each of the following loan types: a) Interest Only B) CAM, C) CPM

Answer 1

	a)	Interest Only
	A	Loan amount	$2,000,000
	B	Monthly interest rate=(8/12)%	0.6667%
	C=A*B	Monthly Interest payment	$13,333.33
			Month	Beginning Loan Balance	Monthly Payment	Ending Loan Balance
			1	$2,000,000	$13,333.33	$2,000,000
			2	$2,000,000	$13,333.33	$2,000,000
			3	$2,000,000	$13,333.33	$2,000,000
	b)	CAM: Constant Amortization Mortgage
		In this case, Constant amount of Principal Is paid every month
		Interest is calculated based on Loan Balance
		Number of months of loan =30*12	360
		Principal Payment Every Month	$5,555.56	(2000000/360)
				A	B	C=A*0.6667%	D=B+C	E=A-B
			Month	Beginning Loan Balance	Principal Payment	Interest Payment	Total Monthly Payment	Ending Loan Balance
			1	$2,000,000	$5,555.56	$13,333.33	$18,888.89	$1,994,444.44
			2	$1,994,444	$5,555.56	$13,296.30	$18,851.85	$1,988,888.89
			3	$1,988,889	$5,555.56	$13,259.26	$18,814.81	$1,983,333.33
	c)	CPM: Constant Payment Mortgage
		In this case Total payment each month is constant
	Pv	Loan amount	$2,000,000
	Nper	Number of months of mortgage	360
	Rate	Monthly interest rate	0.6667%
	PMT	Monthly Constant Payment	$14,675.29	(Using PMT function of excel with Rate=0.6667%,Nper=360,Pv=-2000000)
				A	B=D-C	C=A*0.6667%	D	E=A-B
			Month	Beginning Loan Balance	Principal Payment	Interest Payment	Total Monthly Payment	Ending Loan Balance
			1	$2,000,000	$1,341.96	$13,333.33	$14,675.29	$1,998,658
			2	$1,998,658	$1,350.90	$13,324.39	$14,675.29	$1,997,307
			3	$1,997,307	$1,359.91	$13,315.38	$14,675.29	$1,995,947