Question

You need a 30-year, fixed-rate mortgage to buy a new home for $250,000. Your mortgage bank will lend you the money at an APR of 5.45 percent for this 360-month loan. However, you can afford monthly payments of only $900, 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 $900?

Answer 1

Answer: $463,067.50

Explanation:

Calculation of single bill payment i.e. Future value

$Future\ value=Present\ value\times(1+r)^{n}-Payment\times\frac{(1+r)^{n}-1 }{r}$

$Future\ value=250,000\times(1+\frac{5.45}{1200} )^{360}-900\times\frac{(1+\frac{5.45}{1200} )^{360}-1 }{\frac{5.45}{1,200} }$

                            = $250,000 × 5.110505847 - $900 × 905.06551

                            = $1,277,626.46 - $814,558.96

                            = $463,067.50

Therefore, the single balloon payment will be $463,067.50