Question

Beverly is obtaining a mortgage to buy a house in Brampton, ON for $1,100,000. A 20% down payment is required. The mortgage rate is 2.5% for a 5-year term. The amortization period is 25 years.

1. What is her monthly payment?
2. She took out the mortgage loan on September 1, 2017, and makes her monthly payment on the 1^st of each month, starting on Oct 1, 2017. For the payment on October 1, 2020, what fraction of the payment is for repaying interest on the outstanding amount of the loan?

Answer 1

Loan Amount = House Price*(1- % of down payment)

Loan Amount = $1100,000*(1-0.20)

Loan Amount = $880,000

Calculating the Monthly payment on loan:-

Where, P = Loan amount = $880,000

r = Periodic Interest rate = 2.5%/12 = 0.208333%

n= no of periods = 25 years*12 = 300

Monthly Payment = $3947.83

- She made the first payment on 1st october exactly 1 month after taking the loan

Interest Portion in first payment = Loan amount*Periodic Interest rate = $880000*0.208333%

= $1833.33

Fraction of the payment is for repaying interest on the outstanding amount of the loan = Interest Portion in first payment/Monthly payment

= $1833.33/$3947.83

= 46.44%

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