Answer:
Explanation:
Twyla and Tony with a balloon mortgage of 30/5 will make constant payments over the space of 5 years and then complete the bulk balloon payment for 25 years remaining.
Given mortgage loan value of $389900
Interest rate of 4.85%
We are asked to calculate the interest over the life of the loan.
We will calculate interest by calculating constant payments over the period of 5 years before balloon payment is due and adding them together then subtracting the mortgage loan given $389900
Formula for constant payments :
A= P×r×r(1+r)^n/(1+r)^n-1
Where A= constant/monthly payments
r= interest rate on the mortgage loan
n= number of payments = 30×12= 360
P= mortgage loan given
A= $389900×0.0485×0.0485(1+0.0485)^360/(1+0.0485)^360-1
=$389900×0.0485×1231340.79/25388468.94
=$389900×0.0485×0.04850
A= $917.142
Payment for five years(with interest)= $917.142×60= $55028.52
Calculate balloon payment:
FV= PV(1+r)^n - P((1+r)^n-1/r)
Where FV= future value of balloon payment
PV= initial loan given
r= interest rate on loan
n= number of payments
P= monthly payments
Substitute:
FV= $389900(1+0.0485/12)^60-917.142((1+0.0485/12)^60-1/0.0485/12)
=$389900×1.2738-917.142(0.2738/0.004041)
=$389900×1.2738-917.142×67.756
= 496654.62-62141.87
FV = $434512.75
Therefore total payment made with interest over the life of the loan= balloon payment+ constant payments for five years= $434512.75+$55028.52
=
