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A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 6%...

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A borrower takes out a 30-year mortgage loan for $250,000 withan interest rate of 6% and monthly payments. What portion of thefirst month's payment would be applied to interest? ($1250) Assumethe question above was a negative amortization loan, what would bethe balance after 3 years?

Answer & Explanation Solved by verified expert
4.2 Ratings (730 Votes)

a. First month payment applied to interest $       1,250.00
Working:
Interest expense = Loan balance at the beginning * Monthly interest rate
= $ 2,50,000.00 * 6%*1/12
= $       1,250.00
b. Balance after 3 years $ 2,40,210.18
Working:
Present value of annuity of 1 for 360 months = (1-(1+i)^-n)/i Where,
= (1-(1+0.005)^-360)/0.005 i = 6%/12 = 0.005
= 166.7916144 n = 30*12 = 360
Monthly payment = Loan amount / Present value of annuity of 1
= $ 2,50,000.00 / 166.7916
= $       1,498.88
Present value of annuity of 1 for 324 months = (1-(1+i)^-n)/i Where,
= (1-(1+0.005)^-324)/0.005 i = 6%/12 = 0.005
= 160.2601717 n = 30*12 = 360
Balance after 3 years = Monthly payment * Present value of annuity of 1 for 324 months
= $       1,498.88 * 160.2602
= $ 2,40,210.18

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Transcribed Image Text

A borrower takes out a 30-year mortgage loan for $250,000 withan interest rate of 6% and monthly payments. What portion of thefirst month's payment would be applied to interest? ($1250) Assumethe question above was a negative amortization loan, what would bethe balance after 3 years?

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