We receive a mortgage loan for 20 years.. The mortgage rate is 6% per annum. Add

Question

We receive a mortgage loan for 20 years.. The mortgage rate is 6% per annum. Additionally, the monthly payment we ought to make to the bank to amortize the loan is $2, 500. Secondly, compute the remaining amount we still owe the bank, if we pay an additional single sum of $50,000 after 5 years. Thirdly, as part of this computation, find how many more months, we will pay the bank to induce the loan expire. Fourthly, if we accumulate a lot by year 10(end of the year), how much would we give additionally to the lender to eliminate the loan? Fifthly, how much is the effective annual rate? **Show your work

Explanation / Answer

Number of periods (20 years x 12 months)NPER 240 Rate = 6%/12 months 0.50% Monthly payment (PMT) $2,500 Amount of Mortgagage loan ( FV calculated in excel) $1,155,102.24 Future value of Mortgage loan after 5 years Number of periods (15 years x 12 months) NPER 180 Rate = 6%/12 months 0.50% Monthly payment (PMT) $2,500 Amount of Mortgagage loan after 5 years ( FV calculated in excel) $727,046.78 Less: Amount paid ($50,000) Amount owe to the bank $677,046.78 Number of periods to expire the loan Amount owe to the bank (FV) $677,046.78 Rate = 6%/12 months 0.50% Monthly payment (PMT) $2,500 NPER (calculated using Nper function in excel) 172 periods Future value of Mortgage loan after 10 years Amount owe to the bank (FV) $677,046.78 Number of periods (10 years x 12 months) NPER 120 Rate = 6%/12 months 0.50% Monthly payment (PMT) $2,500 Amount of Mortgagage loan after 10 years ( FV calculated in excel) $409,698.37 Amount given additionally to the lender to eliminate the loan ($677,046.78 - $409,698.37) $267,348.41 Effective Rate = (1+.06)^12-1 1.01 %

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