Question

Consider a $5,000,000, 9%, CPM with monthly payments. What is the regular monthly payment and the balloon payment amounts in each of the following cases:

(a) Fully-amortizing, 30-year loan

(b) 30-year amortization, 10-year balloon

(c) 15-year amortization, 10-year balloon

(d) What is the major disadvantage, and advantage, of the 15-year amortization-rate 10-year loan in (c) as compared to the 30-year amortization-rate 10-year loan in (b)?

Please answer only if sure.

Answer 1

Answer :

(a).

PV = 5,000,000 ; N (number of payments) = 30*12 = 360; rate (monthly rate) = 9%/12 = 0.75%, solve for PMT

Regular monthly payment = 40,231.13

(b).

PV = 5,000,000; N (number of payments) = 30*12 = 360; rate (monthly rate) = 9%/12 = 0.75%, solve for PMT.

Regular monthly payment = 40,231.13

Principal outstanding after 10 years; PV = -5,000,000; PMT = 40,231.13; N = 10*12 = 120; rate = 0.75% solve for FV.

(c).

PV = 5,000,000 N(number of payments) = 15*12 = 180; rate(monthly rate) = 9%/12 = 0.75%, solve for PMT

Regular monthly payment = 50,713.33

Principal outstanding after 10 year; PV = -5,000,000; PMT = 50,713.33; N = 10*12 = 120; rate = 0.75% solve for FV

Balloon payment after 10 years = 2,443,032.15

(d). Major advantage is that the balloon payment is samller compared to the 30 year amortization loan. Major disadvantage is that due to greater amortization, the monthly mortagage payment is higher.