You have just arranged for a $1,780,000 mortgage to finance the purchase of a la

Question

You have just arranged for a $1,780,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 8 percent, and it calls for monthly payments over the next 22 years. However, the loan has an eight-year balloon payment, meaning that the loan must be paid off then.

How big will the balloon payment be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You have just arranged for a $1,780,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 8 percent, and it calls for monthly payments over the next 22 years. However, the loan has an eight-year balloon payment, meaning that the loan must be paid off then.

Explanation / Answer

You need to calculate the amount of monthly payment over the period of 22 years first:

PV = 1780000 (indicates the value of loan)

Rate =8%/12 (indicates the monthly rate of interest)

Nper = 22*12 = 264 (indicate the period over which payments are expected to be made)

FV = 0 (indicates future value, not relevant in this case)

PMT = ? (indicates the amount of monthly payment)

Monthly Payment Over 22 Years = PMT(Rate,Nper,PV,FV) = PMT(8%/12,264,-1780000,0) = X

Total Value after 22 Years = 264*X = Y

Payments for 8 Years = 8*12*X = Z

Balloon Payment = Total Value after 22 Years - Payments for 8 Years = Y - Z = Ans.

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