Question

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28. John and Peggy recently bought a house. They financed the house with a $278,000, 30-year...

28. John and Peggy recently bought a house. They financed the house with a $278,000, 30-year mortgage with a nominal interest rate of 9.04%. Mortgage payments are made at the end of each month. What total dollar amount of their mortgage payments during the first 4 years will go towards repayment of principal?

Expert Solution

No of monthly installments (N) = 30 * 12 = 360
PV of loan = $ 278000

Monthly interest rate = 9.04%/12 = 0.7533%

Monthly installment (PMT) = ??

Using financial calculator or PMT function in excel,

Monthly installment (PMT) = $2,244.86

Value of loan at the end of 4th year

No of monthly installments pending (N) = 26 * 12 = 312
Monthly interest rate = 9.04%/12 = 0.7533%

Monthly installment (PMT) = $2,244.86

Therefore value of loan at the end of year 4 (PV) = ??

Using financial calculator or PV function in excel,

value of loan at the end of year 4 (PV) = $269,330.80

Therefore, total principal repayment in 4 years = value of loan at beginning - value of loan at the end of year 4

total principal repayment in 4 years = $ 278,000 - $ 269,330.80 = $8,669.20

Therefore dollar amount of their mortgage payments during the first 4 years will go towards repayment of principal = $8,669.20

Thumbs up please if satisfied. Thanks :)

Comment for further doubts

jeff jeffy answered 1 year ago

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