Question

You have secured a loan from your bank for two years to build your home. The terms of the loan are that you will borrow $155,000 now and an additional $105,000 in one year. Interest of 10 percent APR will be charged on the balance monthly. Since no payments will be made during the 2-year loan, the balance will grow. At the end of the two years, the balance will be converted to a traditional 20-year mortgage at a 8 percent interest rate.

What will you pay as monthly mortgage payments (principal and interest only)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

PMT

$

Answer 1

FV after two years = FV of today loan + FV loan after a year

FV of today loan

= Principal * (1+r)ⁿ

= $ 155,000 * (1+0.10)²

= $ 155,000 * 1.1²

= $ 155,000 * 1.21

= $ 187,550

FV loan after a year

= Principal * (1+r)ⁿ

= $ 105,000 * (1+0.10)¹

= $ 105,000 * 1.1¹

= $ 105,000 * 1.10

= $ 115,500

FV after 2 Years

= $ 187,550 + $ 115,500

= $ 303,050

EMI = EMI convetable amount / PVAF (r%, n)

where r is int rate per month & n is no. of months

= $ 303,050 / PVAF ( 0.6667%, 240)

= $ 303,050 / 119.5543

= $ 2534.83