Question

"If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with annual payments of $11,680.36, how much interest (as opposed to return of capital) is paid in the last year of the loan"

Answer 1

Answer:

$964

Explanation:

to calculate this I will prepare a payment schedule on excel:

• APR = 9%
• principal = $120,000
• n = 30 annual payments
• payment = $11,680.36

the last years payments will include $964 paid in interests and $10,716 in principal

As more payments are made, the principal balance n the loan decreases, so the next payment will include less interests and more principal.

Download pdf

Answer 2

Answer:

$ 1,592,121.121

Explanation:

Present Value at T=0 is $120,000

N = 30

I = 9%

PMT = $11,680.36

We shall calculate the Future Value without PMT and then with PMT. The difference would be the amount of interest paid.

FV at T = 30 with PMT is -$3,184,242.537

FV at T = 30 without PMT is -$1,592,121.416

The total interest paid on the loan is = $ 1,592,121.121