Question

Stu Reese has a $150,000 7½% mortgage. His monthly payment is $1,010.10. His first payment will reduce the principal to an outstanding balance of A. $149,729.40. B. $149,927.40. C. $72.60. D. $149,910.40.

Answer 1

Given that

starting outstanding balance = $150000

rate of interest = 7.5% per year

so rate of interest for 1 month = (7.5/12)% = 0.635%

outstanding balance before 1st monthly payment =  starting outstanding balance   +   0.625% of interest on  starting outstanding balance

= 150000 + (0.625 /100) × 150000

= 150000 + 937.5 = $150937.5

Reduction = outstanding balance after one month - first monthly payment

Reduction  = $150937.5 - 1010.10 = 149927.40

so out of first payment of $1,010.10 ,  $937.5  goes towards interest and remaining $72.6 goes towards reduction of principal that is 150000 - $72.6 = 149927.40.

so correct option is B that is $149927.40.