The Taylors have purchased a $350,000 house. They made an initial down payment o

Question

The Taylors have purchased a $350,000 house. They made an initial down payment of $10,000 and secured a mortgage with interest charged at the rate of 7%/year on the unpaid balance. Interest computations are made at the end of each month. If the loan is to be amortized over 30 years, what monthly payment will the Taylors be required to make? (Round your answer to the nearest cent.)

What is their equity (disregarding appreciation) after 5 years? After 10 years? After 20 years? (Round your answers to the nearest cent.)

Explanation / Answer

Out of $350000, they have paid $10000. So left out amount is $340000.

And 7% rate of interest is charged on this unpaid amount ie $340000.

Principal = $340000

Rate of interset = 7%

Time = 30 years = 360 months

So monthly payment comes out to be $2,262.

Total Interest = $474,330

And further;

The equity is the value of the house minus the balance on the loan. The balance on the loan at any point in the future is the present value of the remaining payments (when no extra principal payments have been made). So you found the payment using a formula to get payment from present value (initial loan amount). Just reverse that formula to find present value (the balance) from the payment. Use 25 years in the formula to get the balance after 5 years.

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