Question

In: Finance

You purchase a $1,250,000 home by providing a down payment equal to 20% of the purchase price.

You purchase a $1,250,000 home by providing a down payment equal to 20% of the purchase price. You take out a loan for the remaining balance that requires equal end-of -month payments over the next 30 years with an EAR of 3.8%. How interest will be paid with the first two payments?

Solutions

Expert Solution

Cost of Asset   $1,250,000
Down Payment = 20% i.e. $250,000
Loan 1000000
Interest 3.8%
Monthly Interest Rate 0.32%
Time 30 Years
Annuity Factor =(1-((1+r)^-n))/r
=(1-((1+0.32%)^-30))/0.32%
= 214.611
Annual Payment = 4659.57351
Month Loan Beginning Interest Payment Loan Outstanding
1 1000000 3167 4660 998507
2 998507 3162 4660 997009
6329

Hence interest for first two months will be $6,329


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