The Turners have purchased a house for $180,000. They made an initial down payme

Question

The Turners have purchased a house for $180,000. They made an initial down payment of $20,000 and secured a mortgage with interest charged at the rate of 9%/year compounded monthly on the unpaid balance. The loan is to be amortized over 30 yr. (Round your answers to the nearest cent.)

(a) What monthly payment will the Turners be required to make?
$ __________

(b) How much total interest will they pay on the loan?
$ ___________

(c) What will be their equity after 10 years?
$ ____________

(d) What will be their equity after 22 years?

Explanation / Answer

(a)

N = 12*30 years = 360

R = 0.09/ 12 = 0.0075

Loan amount = $180,000 - $20,000 = $160,000

Monthly payment = ($160,000 * 0.0075) / (1 – 1.0075-360) = $1287.40

(b)

Total payments made = $1,287,.40 * 360 = $463,464

Interest = $463,464 - $160,000 = $303,464

(c)

Present value of remaining 20 years installments = $1287.40 * (1 - 1.0075-240) / 0.0075 = $143,088

Equity after 10 years = $160,000 - $143,088 = $16,912

(d)

Present value of remaining 8 years = $1287.40 * (1 - 1.0075-96) / 0.0075 = $87,875.91

Equity after 22 years = $160,000 - $87,875.91 = $72,124.09

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