In: Finance
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%.
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