Question

In: Finance

On June 1, you borrowed $230,000 to buy a house. The mortgage rate is 8 percent....

On June 1, you borrowed $230,000 to buy a house. The mortgage rate is 8 percent. The loan is to be repaid in equal monthly payments over 20 years. The first payment is due on July 1. Assume that each month is equal to 1/12 of a year. How much of the second payment (on August 1) applies to the principal balance? $ How much of the second payment (on August 1) is interest? $ How much of the third payment (on September 1) applies to the principal balance? $

Solutions

Expert Solution

Formula for monthly payments (EMI) –

P = EMI/ (1+r) + EMI/ (1+r)2 +………….+ EMI / (1+r)N

=>   EMI = [P * r * (1+r)N ] / [(1+r)N – 1]

where,

P = Loan Borrowed = Principal = $230,000

r = monthly rate = 8%/12 = 0.6667%

N = No of months = 20 * 12 = 240

So, EMI = [230,000 * 0.0067 * (1+0.006667)240 ] / [(1+0.006667)240 – 1]

=> EMI = $1923.87 = $1924

Table for payments for first four months is as follows -

Month

Opening Principal

EMI

Interest

(Opening Principal * 8%/12)

Principal Repayment

(EMI _ Interest)

Closing Principal

(Opening Principal – Principal Repayment)

1 (July 1)

         230,000

          1,924

         1,533

            390

         229,610

2 (Aug 1)

         229,610

          1,924

         1,531

            393

         229,216

3 (Sep 1)

         229,216

          1,924

         1,528

            396

         228,821

4 (Oct 1)

         228,821

          1,924

         1,525

            398

         228,422

For second payment on 1st Aug, $1,531 payment is for interest and $390 is for principal repayment.

For third payment on 1st Sep, $1,528 payment is for interest and $393 is for principal repayment


Related Solutions

#1) On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 5.20...
#1) On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 5.20 percent. The loan is to be repaid in equal monthly payments over 15 years. How much of the first payment applies to the principal balance? $714.43 $722.50 $717.51 $756.70 $658.56 #13) You want to borrow $34,800 and can afford monthly payments of $960 for 48 months, but no more. Assume monthly compounding. What is the highest APR rate you can afford? 13.18 percent 14.52...
This morning, you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The...
This morning, you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The loan is to be repaid in equal monthly payments over 20 years with the first payment due one month from today. Assume each month is equal to 1/12 of a year and all taxes and insurance premiums are paid separately. How much of the five payment applies to the principal balance?
You have decided to buy a house. You can get a mortgage rate of 5.75 percent,...
You have decided to buy a house. You can get a mortgage rate of 5.75 percent, and you want your payments to be $1,050 or less. How much can you borrow on a 15-year fixed-rate mortgage? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Mortgage Amount:_______
You borrowed $270,000 for 30 years to buy a house with a graduated payment mortgage with...
You borrowed $270,000 for 30 years to buy a house with a graduated payment mortgage with an interest rate of 5.25% per year. The first year’s monthly payments are $1,123.74, and the payments increase 7.0% per year for five years. What is the monthly payment at the beginning of the third year? Question 14 options: 1) $1,376.63 2) $1,472.99 3) $1,576.10 4) $1,286.57 5) $1,328.95
You have borrowed $56000 as a mortgage loan to buy a house. The bank will charge...
You have borrowed $56000 as a mortgage loan to buy a house. The bank will charge interest at the rate of 9% annually and requires a minimum monthly payment of $500. At the end of five years, you must pay off the entire mortgage by a “balloon payment”. You plan to pay only the minimum amount each month and then pay off the loan with the final payment. Find this balloon payment. (Answer: $49966.07) please answer in excel format
On 1/1/20x1 you have borrowed $450,000 from a mortgage bank to buy a new house, and...
On 1/1/20x1 you have borrowed $450,000 from a mortgage bank to buy a new house, and wish to repay the mortgage loan and the interest in 5 equal annual payments, the first one being payable on 12/31/20x1. The mortgage loan bears interest at 7%.         a) Calculate the annual mortgage payment required. Round off to the nearest cent (e.g.,    $112,753.32). b) Construct the mortgage payment schedule to see if the loan and interest will be paid    in full...
On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75%. The...
On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75%. The loan is to be repaid in equal monthly payments over 20 years. The first payment is due on April 1. How much of the third payment applies to the principal balance? (Assume that each month is equal to 1/12 of a summer).
You borrowed $220,000 for 30 years to buy a house. The mortgage, which has constant monthly...
You borrowed $220,000 for 30 years to buy a house. The mortgage, which has constant monthly payments and is fully amortizing, has an interest rate of 4.75% per year. What is the amount of interest you pay in the third year? Question 2 options: 1) $9,941 2) $10,107 3) $9,972 4) $10,088 5) $10,039
9 years ago you borrowed $147695 to buy a house. The interest rate quoted to you...
9 years ago you borrowed $147695 to buy a house. The interest rate quoted to you was 6.26 percent for 30 years with monthly payments. Assuming you have made regular monthly payments up to now, what is the amount (in $) you still owe on the loan today? Answer to two decimals. Hint: The hard way to do this is to use an amortization table. There is an easier way - see if you can find it. Can you explain...
You borrow $149000 to buy a house. The mortgage rate is 7.5% and the loan period...
You borrow $149000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. What is the monthly mortgage payment.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT