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 $105,000 now and an additional $55,000 in one year. Interest of 8 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 6 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.)

Answer 1

Value of both loan two years from now:

Loan value two years later = 105000 x (1+8%/12)^(2x12) + 55000 x (1+8%/12)^(1x12) = $182,718.21

---- Now, we can calculate payment:

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate/Frequency =	0.500000
FV = Future value =	$0
N = Total payment term x Frequency =	240
PV =	-$182,718.21
CPT > PMT = Payment =	$1,309.05
Alternate formula-based method:
PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1) =	$1,309.05

Monthly mortgage payments = $1,309.05