Question

1. You need a 20-year, fixed-rate mortgage to buy a new home for $200,000. Your mortgage bank will lend you the money at a 7 percent APR for this 240-month loan. However, you can afford monthly payments of only $800, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

Required:

How large will this balloon payment have to be for you to keep your monthly payments at $800?

$406,646.7

$391,006.44

$96,813.99

$84,084.56

$379,276.25

Answer 1

Calculate the future value of the $200,000 as follows:

Future value of $200,000 is $807,747.77

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Calculate the future value of $800 as follows:

Future value is $800 is $416,741.33.

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Calculate the balloon payment as follows:

Balloon payment = FV of $200,000 - FV of $800

Balloon payment = $807,747.77 - $416,741.33

Balloon payment = $391,006.44.