Question

Mike Jones bought a new split-level home for $150,000 with 20% down. He decided to use Victory Bank for his mortgage. They were offering for 25-year mortgages. Provide Mike with an amortization schedule for two periods. (Use Table 15.1(b)). (Do not round intermediate calculations. Round your answers to the nearest cent.) Payment number Portion to— Balance of loan Interest Principal outstanding 1 2

Answer 1

Given:-

Value of Home = $150000

Down payment = 20% of $150000 = $30000

Loan Amount = $150000 - $30000 = $120000

Interest on Loan = 13.3/4% or 13.75%

Duration of Loan = 25Year

Calculation:-

Interest per month = 13.75%/12 =0.0114583333333333 % or 0.011458%

No. of months payment required = 25 years x 12 Months = 300 Months

To Calculated the monthly mortgage payment:-

The formula is M = P*i*(1 + i)^n/(1+i)^n – 1

Where M is monthly payment of Mortgage

P = principal amount of Loan = $120000

i = interest per month = 0.011458%

n=duration of loan in months = 300 months

When we apply the formula:

M = $120000*[0.011458*(1+0.011458)^300/(1+0.011458)^300-1]

= $120000*[0.011458*(1.011458)^300/(1.011458)^300-1]

=$120000*[0.011458*30.50697/30.5067-1]

=$120000*[0.011458*30.50697/29.50697]

=$120000*[0.349559/29.50697]

=$120000*0.011847 =$1421.60

So,Morgage payment Per month $1421.60

Period 1

Interest for 1st period = $120000 x0. 011458 = $1374.96

Pricipal Amount paid = $1421.60 -$1374.96 =$46.64

Balance in Principal amount = $120000-$46.64 =$119953.36

Period 2

Interest for 1st period = $119953.36 x0. 011458 =$1374.43

Pricipal Amount paid = $1421.60 -$1374.43 =$47.17

Balance in Principal amount = $119953.36 - $47.17 =$119906.19