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An investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10%...

An investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10% APR. After 18 months the investor resells the property for $667,525. How much cash will the investor have from the sale, once the mortgage is paid off?

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Expert Solution

Loan period = 25 years = 300 months

Loan amount = $608,000

Annual interest rate = 8.10%

Monthly interest rate = 8.10% / 12 = 0.6750%

Monthly payment can be calculated using the ordinary annuity formula

Where C = monthly payment

PV = Loan amount = $608,000

i = Monthly interest rate = 0.6750%

n = Loan period = 300 months

C = $4,732.99

Monthly payment = $4,732.99

After 18 months

Remaining loan period = 300-18 = 282 months

Loan balance can be calculated using PV for ordinary annuity formula

PV = loan balance

C = monthly payment = $4,732.99

i = Monthly interest rate = 0.6750%

n = Remainng loan period = 282 months

PV = $596,004.59

Loan balance = $596,004.59

Sale price = $667,525

Amount of cash the investor will have = Sale price - Loan balance = $667,525 - $596,004.59

Amount of cash the investor will have = $71,520.41

jeff jeffy answered 2 years ago

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