In: Finance
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?
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