You have just arranged for a $1,720,000 mortgage to finance the purchase of a la

Question

You have just arranged for a $1,720,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 7.2 percent, and it calls for monthly payments over the next 30 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?

You have just arranged for a $1,720,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 7.2 percent, and it calls for monthly payments over the next 30 years. However, the loan has an eight-year balloon payment, meaning that the loan must be paid off then.

Explanation / Answer

EMI=P==PMT(0.072/12,360,-1720000,0)=11675.16

FV=PV*(1+r)^n-P*((1+r)^n-1))/r

where FV=balloon payment

r=APR/12=7.2%/12=0.6%

PV=loan amount

n=(30-8)*12=22*12=264

FV=1720000*(1+0.006)^264-11675.16*((1.006^264-1)/0.006)=850123.2

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