Question

Logan Green decided to build an earth friendly home. He owned the land, but had to seek financing to cover the cost of construction. Conglomerate Mortgage Company offered him a construction loan where no payments were made until one month after the certificate of occupancy was issued. After that the loan would convert to a standard 30 year fixed rate mortgage. Logan borrowed a lump sum of $440500 at 4% per year compounded monthly. Logan received his certificate of occupancy exactly 12 months after taking out the loan. What are his monthly payments? $  
How much interest does he pay in the first full year of making payments? $

Answer 1

He received his occupancy certificate only at the end of 12 months thus first payment will be made only at the end of 13th month. The interest that he is required to pay will get accumulated to the loan amount. Here i have assumed that in the first 12 months he is making payment for interest. Thus the loan amount remains to be $ 440,500.

Loan Amount = $ 440,500, Tenure = 30 years, Interest rate = 4%

In the first year his interest payment will be equal to

= 440,500 * (0.04/12) = $ 1,468.33

Thus in first year his total interest payment will be = 1468.33 * 12 = $ 17,620

I feel the solution provided below is correct please go through it.

Now when he does not makes interest payment for the first 12 months then the loan amount can be calculated as shown below

After a year the loan amount is $ 458,446.65. Now we have to calculate the Monthly installment

Monthly Installment = $ 2,188.69

Calculation of interest paid First full year of making payment

So interest paid in first full year of payment = $ 18,208.72

Have solved it using excel getting the same values.

i have solved it using two assumptions although i feel the second one is correct. Please contact if having any query thank you.