Question

In: Finance

Ann obtains a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $1,250,000 at...

Ann obtains a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $1,250,000 at 4.38%. What will be Ann’s mortgage balance after 20 years of payments (i.e. after 240 months)?

Ann obtains a fully amortizing 30-year Fixed Rate Mortgage with monthly payments for $1,250,000 at 4.38%. What fraction of Ann’s 40th payment goes to interest?

Solutions with financial calculation and excel please.

Solutions

Expert Solution

Step 1 ) Calculate the loan amount

We are given the following information:

Payment PMT 1250000.00
Rate of interest r 4.38%
Number of years n 30.00
Monthly Compounding frequency 12.00
Loan amount PV To be calculated

We need to solve the following equation to arrive at the required PV:

So the loan amount is 250,210,069.69

Excel Input =PV(0.0438/12,30*12,-1250000,0)

PMT is negative as you need to pay the same to pay off the loan and therefore it is an outflow.

Step 2) Develop the amortization schedule

Opening balance = previous year's closing balance
Closing balance = Opening balance-Principal repayment
PMT is calculated as per the above formula
Interest = 0.0438 /12 x opening balance
Principal repayment = PMT - Interest

Step 3) Closing balance or the outstanding balance after 240th month as per above schedule is  $121,287,473.47

Step 4) In the 40th payment interest portion is $861,853.87, this is 861853.87/1250000 = 0.6895 or 68.95% of the payment


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