Question

In: Finance

You have just negotiated a 5-year mortgage on $400,000 amortized over 25 years at a rate...

You have just negotiated a 5-year mortgage on $400,000 amortized over 25 years at a rate of 3.5%. After 5 years assume that the mortgage rate remains the same, but you increase the payments by 500 dollars per month, in how many periods (months) will you be able to pay the whole amount.

please show all steps for answer.

Solutions

Expert Solution

First, let's find the monthly payment

PV = 400,000

n = 25 * 12 = 300

r = 3.5%/12 = 0.002916666667

After 5 years, the loan outstanding is:

n = (25 - 5) * 12 = 240

PMT = 2,002.4942811295

r = 0.002916666667

PV = 345,281.6150551276

Now, we will find N, such that

PMT = 2,002.4942811295 + 500 = 2,502.4942811295

PV = -345,281.6150551276

I/Y = 0.2916666667

FV = 0

CPT N

N = 176.7872235 months

Total months to payoff the entire loan = 60 + 176.7872235

Total months to payoff the entire loan = 236.7872235

Total months to payoff the entire loan ~ 237 months


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