Question

.Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%.

Answer 1

Answer:

The monthly loan interest = $350

Explanation:

Loan amortization (repayment mortgage)

A repayment mortage is such that a mortgage is repaid using a series of equal installments . Each installmet pays the interest accrued and a portion of the loan

Interest only-mortgage

On the other hand, under an interest only mortgage the borrower is required to pay only the interest due on the loan monthly , the principal can be paid in a lump sum at the end of the loan period.

The advanatage of an interest only mortgage is that it makes mortgage very accessible and affordable. However, the borrower will still be owing the principal amount of the mortgage at the end of the loan period, which might mean a cash flow pressure.

We can work out the monthly pay for an interest only mortgage as foolws:

Monthly repayment =( Loan amount× rate (%) × year)/(year × 12)

The monthly loan interest = (56,000× 7.5% × 15)/12×15

                                    =$350

The monthly loan interest = $350