Question

This morning, you borrowed $150,000 to buy a house. The mortgage rate is 7.35 percent. The loan is to be repaid in equal monthly payments over 20 years. The first payment is due one month from today. How much of the second payment applies to the principal balance

Answer 1

Answer:

$277.61 is applies  to the principal balance of the second payment.

Explanation:

Loan is provided to purchase any asset and pay it back on easy installment with some interest amount yearly.

Use following formula to calculate monthly installment:

P = (PV x r) / ( 1 - ( 1 + r )^-n )

P = ( $150000 x 7.35%/12 ) / ( 1 - ( 1 + 7.35% / 12 )^-240

P  = 1194.669

1st payment

Payment = $1,194.67

Interest = 150,000 x 7.35/12 = $918.75

Principal Payment = $1,194.67 - $918.75 = $275.92

Outstanding balance = $150,000 - $275.92 = 149,724.08

2nd Payment

Payment = $1,194.67

Interest = 149,724.08 x 7.35/12 = $917.06

Principal Payment = $1,194.67 - $917.06 = $277.61