Assume that you want to buy your dream house that currently is on the market for

Question

Assume that you want to buy your dream house that currently is on the market for 195,000. You have 10 percent of that amount in your savings and you will borrow the rest at an APR of 3.95 percent, with monthly payments for 30 years. Determine the following

A. monthly payment

B. total interest paid over the life of the loan

C. fill-in the four month amortization table below

Show all calculations. Accuracy for all calculations and the table should be 6 decimals.

Beginning Balance

Ending Balance

Time (month)

Beginning Balance

Payment Interest Principal

Ending Balance

0 1 2 3 4

Explanation / Answer

Solution.

A. Calculation for Monthly loan payment.

Formula =M = P * ( J / (1 - (1 + J)-N))

M = payment amount

P = principal, meaning the amount of money borrowed

J = effective interest rate. Note that this is usually not the annual interest rate; see below for an explanation.

N = total number of payments

j = (3.95/100 ) / 12 = 0.003291

( 1 + J ) ^-n

total number of payments will be N = 30 * 12 = 360.

= ( 1 + 0.003291 ) ^-360

= 0.3064

= 0.003291 / (1- 0.3064) = 0.004744

Monthly payment = $175,500 x 0.004744 = $832.81

B . Total interest paid over the life of the loan

Total payment during loan period = $832.81 x 360 = $299,811.60

Interest = $299,811.60 - $175,500 = $124,311.60

C. Four month amortization table below

PmtNo. Beginning Balance Scheduled Payment Total Payment Principal Interest Ending Balance 1 $      175,500.00 $         832.81 $          832.81 $          255.13 $         577.69 $ 175,244.87 2 175,244.87 832.81 832.81 255.97 576.85 174,988.91 3 174,988.91 832.81 832.81 256.81 576.01 174,732.10 4 174,732.10 832.81 832.81 257.65 575.16 174,474.45

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