In: Finance
What is the monthly payment for a 30-year mortgage with a 3.00% APY? How much of the first payment goes toward reducing the principal amount owed?
Given
Let the loan Amount = $ 100000
Mortgage period = 30 Years
APY = 3%
Interest per Month = 3%/12 = 0.25%
No.of Monthly installments = 30*12= 360 Installments
Computation of Monthly Installment.:
We know that PV of Ordinary Annuity = C [ { 1-( 1+i)^-n } /i]
Here C = Cash flow per period
I = Interest rate per period
n = No.of payments
We know that Present value of the future cash flows is equal to the loan amount.
$ 100000=C [ { 1-(1+0.0025)^-360} /0.0025]
$ 100000= C [ { 1-( 1.0025)^-360} /0.0025]
$ 100000=C [ { 1-0.407027} /0.0025]
$ 100000= C [ 0.592973/0.0025]
$ 100000/237.1894 =C
C = $ 421.604
Hence the Monthly loan Payment = $ 421.604
S..No | Opening Balance | Interest @ 0.25%( Opening Balance *0.25%) | Total outstanding Balance | Amount paid | Closing Balance [ Total outstanding Balance -Amount paidd] |
1 | $100,000 | $250.00 | $100,250.00 | $421.60 | $171.60 |
Out of $ 421.60, the amount allocaed to interest is $ 250
Amount allocated to principal = $ 421.60-$ 250=$ 171.60
Hence $ 171.60 is attributed to the principle.
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