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Suppose an apartment you want to purchase costs $500,000. You can put down 20% in cash...

Suppose an apartment you want to purchase costs $500,000. You can put down 20% in cash and take out a 30-year fixed rate mortgage loan for the remaining. You believe that you can get an APR of 6.5% on such a mortgage loan at a local bank.

Suppose the loan calls for equal monthly payments. Set up a monthly amortization schedule table for the loan (Input: 20%, creating and copying formulas and Excel finance functions: 30%).
What is the sum of total payments made over the life of the loan? What is the sum of total interest paid over the life of the loan? What is the difference of the two numbers? (Summation function 10%, fill color in your answer cells)
What is the balance of the loan AFTER ten years? (build-in Finance function 10%)

Expert Solution

Loan amount = cost of house - down payment

Loan amount = $500,000 - ($500,000 * 20%) = $400,000

Monthly loan payment is calculated using PMT function in Excel :

rate = 6.5% / 12 (converting annual rate into monthly rate)

nper = 30*12 (30 year loan with 12 monthly payments each year)

pv = 400000 (loan amount)

Interest in any month = principal outstanding at beginning of month * 6.5% / 12

Principal portion of monthly payment = monthly payment minus interest portion of payment

principal outstanding at end of month = principal outstanding at beginning of month minus principal portion of monthly payment

sum of total payments = $910,178

sum of total interest paid = $510,178

difference of the two numbers = $400,000

balance of the loan after ten years 120 months) = $339,105

The next part of the table :

The formulas are below :

The formulas are above

jeff jeffy answered 1 year ago

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Suppose an apartment you want to purchase costs $500,000. You can put down 20% in cash...

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