Six years ago you took out a $220,000, 15-year mortgage with an annual interest rate of...

Six years ago you took out a $220,000, 15-year mortgage with an annual interest rate of 6% compounded monthly.

i. Estimate your monthly payments on the mortgage.

ii. Compute the outstanding balance on your current loan if you have just made the 72th payments?

Solutions

Expert Solution

Number of periods = 15 * 12 = 180

Monthly rate = 6% / 12 = 0.5%

Present value = Monthly payments * [1 - 1 / (1 + rate)^time] / rate

220,000 =Monthly payments * [1 - 1 / (1 + 0.005)^180] / 0.005

220,000 =Monthly payments * [1 - 0.40748] / 0.005

220,000 =Monthly payments * 118.50351

Monthly payments = $1,856.49

Number of periods = 180 - 72 = 108

Present value = Monthly payments * [1 - 1 / (1 + rate)^time] / rate

Present value = 1,856.49 * [1 - 1 / (1 + 0.005)^108] / 0.005

Present value = 1,856.49 * [1 - 0.58353] / 0.005

Present value = 1,856.49 * 83.29342

Present value = $154,633.41

Outstanding loan will be $154,633.41

jeff jeffy answered 2 years ago

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