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In: Finance

Suppose you decide to purchase a $150,000 home using an inheritance of $20,000 as your down...

Suppose you decide to purchase a $150,000 home using an inheritance of $20,000 as your down payment. A down payment is subtracted from the total cost of the home and therefore you owe $130,000. To pay for this amount you will need a loan, so $130,000 is the principal on your loan. Suppose the interest rate on a 30 year mortgage is 4.75%.
1. What will your monthly payment be?
2. How much will you pay on the loan if you pay off the loan as scheduled?
3. The cost of a loan is the total amount of interest paid. What is the cost of this loan?
4. Create an amortization table for this loan.
5. What portion of the first payment is interest? What portion of the 180th payment is interest? What portion of the last payment is interest?
6. How much would you save in interest if you paid an extra 10% per month?
7. How much faster would you pay off the loan if you paid an extra 10% per month?

Solutions

Expert Solution

The monthly payment on the loan is calculated using the following equation

Present value of the loan = $150000 - $20000

Monthly payment will be = $ 678.14

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Total paid on the loan = $ 678.14 360 months

Total paid on the loan = $ 244131

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Cost of the loan = $ 244131 - $ 130000

Cost of the loan = $ 114131

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The amortization schedule of the loan is created using excel.

Month	Beginning balance ($)	Monthly payment ($)	Interest ($)	Principal ($)	Ending balance ($)
1	130000	678.14	514.58	163.56	129836.4

The interest payment on the first portion = ( 0.0475 12 ) 130000 = $ 514.58

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The portion of the 180th payment that goes towards interest = $346.42

The portion of the last payment paid towards inrerest = $2.68

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10% extra per month = $ 678.14 + 0.10 $ 678.14 = $ 745.95

If 10% extra is paid per month , the total interest paid = 91046.25

Savings in intrerest = $ 114131 - $ 91046.25

Savings in interest = $ 23084.75

The loan will be paid off in 296 months or 24.76 years

The loan will be paid off 5.33 years earlier.

The amortization schedule is shown below

jeff jeffy answered 1 year ago

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