Question

In: Finance

Mr. Brown and Ms. Brown agreed to pay $560,000 for a four-bedroom colonial home in Massachusetts...

Mr. Brown and Ms. Brown agreed to pay $560,000 for a four-bedroom colonial home in Massachusetts with a $60,000 down payment. They have a 30-year mortgage at a fixed rate of 6.0%.

  1. How much is their monthly payment?
  1. After their first payment, what would be the balance of the principal?

Solutions

Expert Solution

We are given the following information:

MonthlyPayment PMT To be calculated
Rate of interest r 6.00%
Number of years n 30.00
Monthly frequency 12.00
Loan amount PV 500000.00

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

So the monthly payment is 2997.75

Below is the impact of the first payment:

Month Opening Balance PMT Interest Principal repayment Closing Balance
1 $        5,00,000.00 $            2,997.75 $         2,500.00 $                         497.75 $      4,99,502.25

Opening balance = previous year's closing balance
Closing balance = Opening balance+Loan-Principal repayment
PMT is calculated as per the above formula
Interest = 0.06 /12 x opening balance
Principal repayment = PMT - Interest
So after first payment, the principal amount repaid is $497.75 and the remaining loan balance is 499502.25


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