Question

Olivia plans to secure a 5-year balloon mortgage of $220,000 toward the purchase of a condominium. Her monthly payment for the 5 years is calculated on the basis of a 30-year conventional mortgage at the rate of 2%/year compounded monthly. At the end of the 5 years, Olivia is required to pay the balance owed (the "balloon" payment). What will be her monthly payment for the first 5 years, and what will be her balloon payment? (Round your answers to the nearest cent.)

monthly payment $ ______

balloon payment $________

Answer 1

1.Information provided:

Present value (PV)= $220,000

Time (N)= 30 years*12 = 360 months

Interest rate (I/Y)= 0.02%/12 = 0.1667% per month

Enter the below in a financial calculator to compute the monthly payment:

FV= 220,000

N= 360

I/Y= 0.1667

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 813.16.

Therefore, the amount of monthly payment is $813.16.

2.Information provided:

Present value (PV)= $220,000

Time (N)= 5 years*12 = 60 months

Interest rate (I/Y)= 0.02%/12 = 0.1667% per month

Monthly payment (PMT) = $813.16

The question is solved by calculating the future value.

Enter the below in a financial calculator to compute the future value of ordinary annuity:

PV = 220,000

PMT= -813.16

N= 60

I/Y= 0.1667

Press the CPT key and FV to compute the future value.

The value obtained is 191,854.12.

Therefore, the balloon payment is $191,854.12.

In case of any query, kindly comment on the solution.