Jasmine and her husband are considering trading up their home by selling their c

Question

Jasmine and her husband are considering trading up their home by selling their current house, and buying a new house at a price of $450,000. They plan to sell their current house for $280,000, and use the money for a down payment. They will take out a mortgage to cover the remaining balance. The interest rate for such a mortgage amortized over a 20-year period is 7.75%, compounded monthly.

a) What will Jasmine’s monthly mortgage loan payment be?

b) What will be the total interest that Jasmine and her husband will pay over the 20-year life of the loan?

c) How much of her 1st payment is towards interest, and how much is applied against the principal of the

mortgage loan?

d) Use Excel to construct an amortization table for the first 12 payments, and print out the table with your

name and ID.

e) How much is still owing after five years?

f) How much of the 61st payment is towards interest, and how much is applied against the principal of the

mortgage loan?

Explanation / Answer

Cost of New house = $450,000.

Sale of old house(down payment) = $280,000

Mortagage required = $450,000-$280,000 = $170,000.

Interest rate = 7.75/12 = 0.646%.

period = 20 years.

a. Compute the monthly payment using excel function.

Monthly payment = PMT(rate,Nper,Pv,FV) = =PMT(7.75%/12,240,170000) = $1395.61.

b.Total interest paid over the 20 year = $1395.61*240 - 170,000 = $164,946.4.

c.

Interest component = $170,000 *(7.75%/12) = 1097.91

Principal component = $1395.61-1097.91 = $297.7.

d.

Monthly period Beginning Balance Interest Accumulated amount Payment Ending Balance 1     170,000.00    1,097.92     171,097.92    1,391.61    169,706.31 2     169,706.31    1,096.02     170,802.33    1,391.61    169,410.72 3     169,410.72    1,094.11     170,504.83    1,391.61    169,113.22 4     169,113.22    1,092.19     170,205.41    1,391.61    168,813.80 5     168,813.80    1,090.26     169,904.05    1,391.61    168,512.44 6     168,512.44    1,088.31     169,600.75    1,391.61    168,209.14 7     168,209.14    1,086.35     169,295.49    1,391.61    167,903.88 8     167,903.88    1,084.38     168,988.26    1,391.61    167,596.65 9     167,596.65    1,082.40     168,679.05    1,391.61    167,287.44 10     167,287.44    1,080.40     168,367.84    1,391.61    166,976.23 11     166,976.23    1,078.39     168,054.61    1,391.61    166,663.00 12     166,663.00    1,076.37     167,739.37    1,391.61    166,347.76

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