Question

In: Accounting

After graduating from University you obtained a job and have been working there for three years....

After graduating from University you obtained a job and have been working there for three years. You recently obtain a promotion and a bonus of $20,000 that you decided to use to buy a house. The cost of the property is $100,000 and a down payment of 20% is required. There are $1000 of closing costs (added to the loan) and no points. The mortgage loan term is 30 years and the interest rate is fixed at 3% per year compounded monthly. a)What is the amount of your monthly payment? You have made monthly payments during five years but you still have NOT done the last payment corresponding to the twelve month of the fifth year. You decide to sell the house and move to the suburbs where you can raise your family. How much is amount that you will need to pay off the balance of the loan including the last monthly payment of the 5th year?

Expert Solution

a) Monthly Payment = $341.5

It can be calculated using PMT formula in excel

=PMT(rate,nper,PV,FV)

rate = 3%annually = 3/12%monthly = 0.25%

no. of periods = 30years = 30*12 months = 360months

PV(Present Value) = $100,000 - (100,000*20%) + $1,000 = $81,000

=PMT(0.25%,360,-81000,0) = $341.5

b) the balance of the loan including the last monthly payment of the 5th year = $60851.50

Annual Interest rate = 3%

interest rate converts from annual into compounded monthly = (1+(0.03/12)^(1/12))-1 = 0.02%

interest amount = Loan amount * interest rate

monthly payment = $341.5

Principal amount = Monthly amount - Interest

Remaining amount = Loan amount - Monthly Payment

We have made monthly payments during five years (i.e. 5*12 = 60 payments) but you still have NOT done the last payment corresponding to the twelve month of the fifth year (i.e. 60-1= 59). It means we have made total 59 payments.

No. of months	Loan amount	interest rate	Interest amount	Monthly Payment	Principal	Remaining amount
1	81000	0.02%	16.86	341.5	324.64	80658.5
2	80658.5	0.02%	16.78	341.5	324.72	80317
3	80317	0.02%	16.71	341.5	324.79	79975.5
4	79975.5	0.02%	16.64	341.5	324.86	79634
5	79634	0.02%	16.57	341.5	324.93	79292.5
6	79292.5	0.02%	16.50	341.5	325.00	78951
7	78951	0.02%	16.43	341.5	325.07	78609.5
8	78609.5	0.02%	16.36	341.5	325.14	78268
9	78268	0.02%	16.29	341.5	325.21	77926.5
10	77926.5	0.02%	16.22	341.5	325.28	77585
11	77585	0.02%	16.15	341.5	325.35	77243.5
12	77243.5	0.02%	16.07	341.5	325.43	76902
13	76902	0.02%	16.00	341.5	325.50	76560.5
14	76560.5	0.02%	15.93	341.5	325.57	76219
15	76219	0.02%	15.86	341.5	325.64	75877.5
16	75877.5	0.02%	15.79	341.5	325.71	75536
17	75536	0.02%	15.72	341.5	325.78	75194.5
18	75194.5	0.02%	15.65	341.5	325.85	74853
19	74853	0.02%	15.58	341.5	325.92	74511.5
20	74511.5	0.02%	15.51	341.5	325.99	74170
21	74170	0.02%	15.43	341.5	326.07	73828.5
22	73828.5	0.02%	15.36	341.5	326.14	73487
23	73487	0.02%	15.29	341.5	326.21	73145.5
24	73145.5	0.02%	15.22	341.5	326.28	72804
25	72804	0.02%	15.15	341.5	326.35	72462.5
26	72462.5	0.02%	15.08	341.5	326.42	72121
27	72121	0.02%	15.01	341.5	326.49	71779.5
28	71779.5	0.02%	14.94	341.5	326.56	71438
29	71438	0.02%	14.87	341.5	326.63	71096.5
30	71096.5	0.02%	14.79	341.5	326.71	70755
31	70755	0.02%	14.72	341.5	326.78	70413.5
32	70413.5	0.02%	14.65	341.5	326.85	70072
33	70072	0.02%	14.58	341.5	326.92	69730.5
34	69730.5	0.02%	14.51	341.5	326.99	69389
35	69389	0.02%	14.44	341.5	327.06	69047.5
36	69047.5	0.02%	14.37	341.5	327.13	68706
37	68706	0.02%	14.30	341.5	327.20	68364.5
38	68364.5	0.02%	14.23	341.5	327.27	68023
39	68023	0.02%	14.16	341.5	327.34	67681.5
40	67681.5	0.02%	14.08	341.5	327.42	67340
41	67340	0.02%	14.01	341.5	327.49	66998.5
42	66998.5	0.02%	13.94	341.5	327.56	66657
43	66657	0.02%	13.87	341.5	327.63	66315.5
44	66315.5	0.02%	13.80	341.5	327.70	65974
45	65974	0.02%	13.73	341.5	327.77	65632.5
46	65632.5	0.02%	13.66	341.5	327.84	65291
47	65291	0.02%	13.59	341.5	327.91	64949.5
48	64949.5	0.02%	13.52	341.5	327.98	64608
49	64608	0.02%	13.44	341.5	328.06	64266.5
50	64266.5	0.02%	13.37	341.5	328.13	63925
51	63925	0.02%	13.30	341.5	328.20	63583.5
52	63583.5	0.02%	13.23	341.5	328.27	63242
53	63242	0.02%	13.16	341.5	328.34	62900.5
54	62900.5	0.02%	13.09	341.5	328.41	62559
55	62559	0.02%	13.02	341.5	328.48	62217.5
56	62217.5	0.02%	12.95	341.5	328.55	61876
57	61876	0.02%	12.88	341.5	328.62	61534.5
58	61534.5	0.02%	12.81	341.5	328.69	61193
59	61193	0.02%	12.73	341.5	328.77	60851.5

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