You are about to buy your first home. You will take out a $300,000 mortgage for

Question

You are about to buy your first home. You will take out a $300,000 mortgage for 30 years, monthly payments, with a fixed rate of 6%. (Please show your work.)

A) What is your monthly payment?

i) How much of that payment will be applied to interest?

ii) How much will be applied to the principle?

B) What will your total payments be over the entire 30 year period?

i) How much of that total will be interest?

ii) How much will be principle?

C) What will be the outstanding loan balance after 10 years?

D) During that 10 year period, what were your total payments?

i) How much of that total will be interest?

ii) How much will be principle?

E) What will be the outstanding loan balance after 20 years?

F) During that 20 year period, what were your total payments?

i) How much of that total will be interest?

ii) How much will be principle? Please show your work. You can solve these questions using the TMV Solver App in the Financial calculate, but please indicate what variables you plugged in.

Explanation / Answer

A) Your monthly payment is $1798.65

i) How much of that payment will be applied to interest?

Interest = $1500

ii) How much will be applied to the principle?

=$298.65

=$1798.65 - $1500

B) Total payments be over the entire 30 year period? =$1798.65*360 months = $647,514.57

i) How much of that total will be interest?

Interest = $647,514.57- $300,000 = $347,514.57

ii) How much will be principle?

Principal will be loan amount $300,000.

C) What will be the outstanding loan balance after 10 years?

By using FV function in excell we can calculate outstanding amount of loan after 10 years as follows

=FV(0.005,120,1798.65,-300000)

= $251,057.43

D) During that 10 year period, total payments = $1798.65 *120 months =$215,838.19

i) How much of that total will be interest?

Using Financial calculator or spread sheet we can found total interest $166,895.36

ii) How much will be principle?

= Total payments (120 months*$1798.65) less interest $166,895.36

= $215.838.19 - $166,895.36

= $48,942.83

E) What will be the outstanding loan balance after 20 years?

=FV(0.005,240,1798.65,-300000)

= $162,011.49

F) During that 20 year period, total payments = $1798.65 *240 months =$431,676.38

i) Total interest will be $293,687.14

Using fincial calculator we can find that Total interest will be $293,687.14

ii) How much will be principle

Total payments (240 months*$1798.65) less interest $293,687.14

=$431,676.38 -$293,687.14

=$137,989.24

=300,000*0.005 * (1+0.005)^360 / ((1+0.005)^360)-1 =1500 * 6.022575212 / 5.022575212 =1,798.65

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