You plan to purchase a $100,000 house using a 30-year mortgage obtained from you

Question

You plan to purchase a $100,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 8.25%. You will make a down payment of 20 percent of the purchase price.

a. Calculate your monthly payments on this mortgage.

b. Calculate the amount of interest and, separately, principal paid in the 25 th payment.

c. Calculate the amount of interest and, separately, principal paid in the 225 th payment.

d. Calculate the amount of interest paid over the life of this mortgage

(use financial calculator and identify the functions used, e.g. N, PV, I, PMT)

Explanation / Answer

a Monthly Mortgage Payment Cost of House          1,00,000 Less: Down Payment             20,000 Principal             80,000 Rate of Interest 8.25% 0.6875% Per Month Years 30 360 months Monthly Mortgage Payment= =(80000*.6875%*(1+.6875%)^360)/((1+.6875%)^360-1)             601.01 b 25 th interest and principal payment total Instalment             360.00 Less: Already paid (25-1)                24.00 Remaining Instalment (t)             336.00 Monthly Payment (PMT)             601.01 Monthly Rate of Interest ( r ) 0.6875% PV=PMT*(1-(1+r)/t)/r =601.01*(1-(1+.006875)^-336)/.006875       78,673.39 Loan Balance after payment of 24th instalment       78,673.39 Interest on 25th instalment 78673.39*.6875%             540.88 Principal Repayment (601.01-540.88)                60.13 c 225 th interest and principal payment total Instalment             360.00 Less: Already paid (225-1)             224.00 Remaining Instalment (t)             136.00 Monthly Payment (PMT)             601.10 Monthly Rate of Interest ( r ) 0.6875% PV=PMT*(1-(1+r)/t)/r =601.01*(1-(1+.006875)^-136)/.006875       52,989.94 Loan Balance after payment of 224th instalment       52,989.94 Interest on 225th instalment 52989.94*.6875%             364.31 Principal Repayment (601.01-364.31)             236.79 d Total amount of interest over mortgage life Monthly Payment (PMT)             601.01 To number of instalments             360.00 Total Payment    2,16,364.78 Less: Loan Amount       80,000.00 Total Amount of Interest    1,36,364.78

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