You need a 35-year, fixed-rate mortgage to buy a new home for $275,000. Your mor

Question

You need a 35-year, fixed-rate mortgage to buy a new home for $275,000. Your mortgage bank will lend you the money at an APR of 5.7 percent for this 420-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

How large will this balloon payment have to be for you to keep your monthly payments at $1,150? Show how to calculate with financial calculator

You need a 35-year, fixed-rate mortgage to buy a new home for $275,000. Your mortgage bank will lend you the money at an APR of 5.7 percent for this 420-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

Explanation / Answer

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate / Frequency = 5.7/12 =

0.475000

PMT = Regular payments / Frequency =

$1,150.00

N =Number of years x Frequency = 35 x 12 =

420.000000

PV = Present Value =

-$275,000.00

CPT > FV = Future Value = Balloon Payment

$482,814.45

Balloon payment should be $482,814.45

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate / Frequency = 5.7/12 =

0.475000

PMT = Regular payments / Frequency =

$1,150.00

N =Number of years x Frequency = 35 x 12 =

420.000000

PV = Present Value =

-$275,000.00

CPT > FV = Future Value = Balloon Payment

$482,814.45

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