Question

Katelyn is financing $368,375 to purchase a house. She obtained a 20/6 balloon mortgage at 4.65%. What will her balloon payment be?

Answer 1

Katelyn's balloon payment will be $127, 619.33.

We have PV (present value) of $368, 375 to be paid in 240 months (20 years, indicated by 20/6) with a mortgage at 4.65% (Annual Interest rate) to be converted into monthly interest rate (4.65/12= 0.3875%).

Using the formula:

P(Balloon) = (PV)(1+r)^n - P[((1+r)^n-1)/r)]

Balloon payment is the amount that has a term that is shorter than its amortization.