Question

In: Finance

Adam just purchased a home and took out a RM250,000 mortgage for 30 years at 8%,...

Adam just purchased a home and took out a RM250,000 mortgage for 30 years at 8%, compounded annually.(a) How much is Adam’s yearly mortgage payment? (b) Find the outstanding principal after five years using Prospective Method. Ans: (a) RM 22206.86 (b) RM 237,053.13

Solutions

Expert Solution

(a)-Yearly Mortgage Payment

Loan Amount (P) = RM250,000

Interest Rate (n) = 8% per year

Number of years (n) = 30 Years

Loan Payment = [P x {r (1+r)n} ] / [( 1+r)n – 1]

= [RM250,000 x {0.08 x (1 + 0.08)30}] / [(1 + 0.08)30 – 1]

= [RM250,000 x {0.08 x 10.062657}] / [10.062657 – 1]

= [RM250,000 x 0.805012] / 9.062657

= RM22,206.86 per year

“Yearly Mortgage Payment = RM22,206.86 per year”

(b)-Outstanding principal after five years

The outstanding principal after 5 years is calculated by using the following formula

Remaining Balance = [Amount Borrowed x (1 + r) n] – [Annual Payment x {{(1 + r)n -1}/ r]

Loan Amount (P) = RM250,000

Interest Rate (n) = 8% per year

Number of years (n) = 5 Years

Annual Payment = RM22,206.86 per year

Outstanding Balance = [Amount Borrowed x (1 + r) n] – [Monthly Payment x {{(1 + r)n -1}/ r]

= [RM250,000 x (1 + 0.08)5] – [RM22,206.86 x {{(1 + 0.08)5 -1}/ 0.08]

= [RM250,000 x 1.469328] – [RM22,206.86 x {(1.469328 – 1) / 0.08]

= [RM250,000 x 1.469328] – [RM22,206 x 5.866601]

= RM 3,67,332.02 - RM1,30,278.89

= RM237,053.13

“The outstanding principal after 5 years would be RM237,053.13”


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