You need a 25-year, fixed-rate mortgage to buy a new home for $300,000. Your mor

Question

You need a 25-year, fixed-rate mortgage to buy a new home for $300,000. Your mortgage bank will lend you the money at a 5.95 percent APR for this 300-month loan. However, you can afford monthly payments of only $1,400, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

How large will this balloon payment have to be for you to keep your monthly payments at $1,400? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You need a 25-year, fixed-rate mortgage to buy a new home for $300,000. Your mortgage bank will lend you the money at a 5.95 percent APR for this 300-month loan. However, you can afford monthly payments of only $1,400, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

Explanation / Answer

Let Balloon payment be x

Present value of all monthly payments and Balloon payment =300,000

300,000 = 1400/(1+5.95%/12) + 1400/(1+5.95%/12)^2 + 1400/(1+5.95%/12)^3 ...... 1400/(1+5.95%/12)^300 + x/(1+5.95%/12)^300

$81,675.89 = x/(1+5.95%/12)^300

x= 360,172.56

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.