Troy and Lisa Kruse just purchased their first home with a traditional (monthly

Question

Troy and Lisa Kruse just purchased their first home with a traditional (monthly compounding and payments) 6%, 30-year mortgage loan of $178,000.

a. How much is their monthly payment?
b. How much interest will they pay for the first month?
c. If they make all payments on time over the 30-year period, how much interest will they have paid?
d. If Troy and Lisa decide to move away after 7 years what will the balance of their loan be at that time?
e. If they finance their home over 15 years rather than 30 years, at the same interest rate, how much less interest will they pay over the life of the loan?

Explanation / Answer

a. Use a finance calculator: Input PV = 178000; No. of periods = 30*12 = 360; Interest per period = 6/12 = 0.5 Compute payment = $1067.2 b. For the first month Loan outstanding = $178,000 Interest = 0.5% Interest paid = 178000*0.5/100 = $890 c. total amount paid in 30 years = 1067.2*360 = $384,192 Total interest paid in 30years = $384,192-178,000 = $206,192 d. Use a finance calculator : Input Payment = 1067.2 No. of periods = (30-7)*12 = 276 Interest/period = 0.5 Compute PV = $159,558 Hence Balance Loan amount = $159,558 e. Use a finance calculator: Input PV = 178000; No. of periods = 15*12 = 180; Interest per period = 6/12 = 0.5 Compute payment = $1,502.07

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