Audrey Sanborn has just arranged to purchase a $550,000 vacation home in the Bah

Question

Audrey Sanborn has just arranged to purchase a $550,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 6.1 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 years. Her first payment is due one month from now. However, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of Year 8. There were no other transaction costs or finance charges. How much will Audrey

Explanation / Answer

Home cost 550,000, We need to find Ballon payment at end of 8 yrs. So 20% down paymet = 20%*550,000 = 110,000 SO Loan = Cost - DOwn Pmt = 440,000 = PV Rate= 6.1% monthly = 6.1%/12 Term = 30 Yrs*12 = 360 period = nper So MonthlyPymt = PMT(rate,nper,pv,fv) = PMT(6.1%/12,360,440000,0) = $2,666.38 Ballon pymt = 8Yrs = 8*12 = 96 periods = nper Ballon Pymt at Y8 = FV(Rate,nper,PMT,PV) = FV(6.1%/12,96,-2666.38,440000) = $(386,994) So Ballo Paymeht at Y8 will be $386,994

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