Question

12. Stanley purchased a $350,000 house with 25% down. He received a 20-year mortgage with 4.2% annual interest rate.

a. Calculate the interest payment in year 2

b. Calculate principal repayment in year 1

Answer 1

Equal Annual instalment = Loan / PVAF(r%, n)

Loan = Purchase Price * ( 1 - Downpaymnet Ratio )

= $ 350000 * ( 1 - 0.25 )

= $ 350000 * 0.75

= $ 262500

Equal Annual instalment = Loan / PVAF(r%, n)

= $ 262500 / PVAF ( 4.2% , 20)

= $ 262500 / 13.3528

= $ 19658.82

Loan Amortization Schedule:

Year	Opening Bal	Instalment	Int	Principal Repay	Closing Balance
1	$ 2,62,500.00	$ 19,658.82	$ 11,025.00	$   8,633.82	$ 2,53,866.18
2	$ 2,53,866.18	$ 19,658.82	$ 10,662.38	$   8,996.44	$ 2,44,869.73
3	$ 2,44,869.73	$ 19,658.82	$ 10,284.53	$   9,374.29	$ 2,35,495.44
4	$ 2,35,495.44	$ 19,658.82	$   9,890.81	$   9,768.01	$ 2,25,727.43
5	$ 2,25,727.43	$ 19,658.82	$   9,480.55	$ 10,178.27	$ 2,15,549.16
6	$ 2,15,549.16	$ 19,658.82	$   9,053.06	$ 10,605.76	$ 2,04,943.40
7	$ 2,04,943.40	$ 19,658.82	$   8,607.62	$ 11,051.20	$ 1,93,892.20
8	$ 1,93,892.20	$ 19,658.82	$   8,143.47	$ 11,515.35	$ 1,82,376.85
9	$ 1,82,376.85	$ 19,658.82	$   7,659.83	$ 11,999.00	$ 1,70,377.85
10	$ 1,70,377.85	$ 19,658.82	$   7,155.87	$ 12,502.95	$ 1,57,874.90
11	$ 1,57,874.90	$ 19,658.82	$   6,630.75	$ 13,028.08	$ 1,44,846.82
12	$ 1,44,846.82	$ 19,658.82	$   6,083.57	$ 13,575.26	$ 1,31,271.56
13	$ 1,31,271.56	$ 19,658.82	$   5,513.41	$ 14,145.42	$ 1,17,126.15
14	$ 1,17,126.15	$ 19,658.82	$   4,919.30	$ 14,739.52	$ 1,02,386.62
15	$ 1,02,386.62	$ 19,658.82	$   4,300.24	$ 15,358.58	$    87,028.04
16	$    87,028.04	$ 19,658.82	$   3,655.18	$ 16,003.65	$    71,024.39
17	$    71,024.39	$ 19,658.82	$   2,983.02	$ 16,675.80	$    54,348.60
18	$    54,348.60	$ 19,658.82	$   2,282.64	$ 17,376.18	$    36,972.41
19	$    36,972.41	$ 19,658.82	$   1,552.84	$ 18,105.98	$    18,866.43
20	$    18,866.43	$ 19,658.82	$      792.39	$ 18,866.43	$            -0.00

From Above Table,

Principal payment in Year 1 = $   8,633.82

Int payment in year 2 = $ 10,662.38

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