Question

On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75%. The loan is to be repaid in equal monthly payments over 20 years. The first payment is due on April 1. How much of the third payment applies to the principal balance? (Assume that each month is equal to 1/12 of a summer).

Answer 1

Amount Borrowed (PV) = $239,000

No of monthly repayment to be made (N) = 20 years x 12 = 240

Monthly rate of interest (I) = 7.75%p.a. /12 = 0.6458% per month

Monthly installment amount (PMT) = ?

Using financial calculator or PMT function in excel,

Monthly installment amount (PMT) = $1962.07

Repayment schedule for 1st 3 installments

Month	Loan balance at beginning of month	Interest (@ 0.6458% p.m.)	Installment amount	Principal portion in installment	Loan balance at the end of month
1	2,39,000.00	1,543.54	1,962.07	418.53	2,38,581.47
2	2,38,581.47	1,540.84	1,962.07	421.23	2,38,160.25
3	2,38,160.25	1,538.12	1,962.07	423.95	2,37,736.30

Therefore Principal portion in 3rd installment is $ 423.95

Thumbs up please if satisfied. :)

Comment if further doubts in above solution.