Question

You need a 25-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.1 percent APR for this 300-month loan. However, you can afford monthly payments of only $850, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $850?
A) $687,844.56

B) $737,482.82

C) $101,874.08

D) $709,118.1

E) $120,814.04

Answer 1

Hi

We need to calculate the future value of the loan payment which will give us the balance balloon payment. I have solved with 2 methods for your reference.

One is with loan amortization schedule

Second method is using FV function of Excel.

With formulae-

Hope this helps!