7. Edward signs a 30 year mortgage at 3.5% compounded monthly. The price of his
ID: 2741791 • Letter: 7
Question
7. Edward signs a 30 year mortgage at 3.5% compounded monthly. The price of his house is $200,000. He makes a down payment of 40,000. Answer the following: (15 PTS) a. What will be his monthly payments? – (5 PTS) b. After 5 years, he makes a one-time payment of $50,000 (against the remaining principle). How many months will he have remaining on his mortgage? To avoid any confusion, he will have exactly 25 years remaining before he makes the $50,000 in payment. – (5 PTS) c. Edwards decides that instead of reducing the NPER after making the $50,000, he requests the bank to keep the NPER to 25 years and reduce his monthly payment instead. What will be his monthly payment going forward? – (5 PTS)
*Please Show What you plug into EXCEL
Explanation / Answer
(1).EMI payable=[P*R*(1+R)n] / [(1+R)n-1] =$718/- [PMT(0.035/12, 30*12, 160,000)]
(2).Revision of period of payment of EMI:-
Year
Principal
Interest
Total Payment
Principal outstanding
1
3071
5551
8622
156929
2
3180
5442
8622
153750
3
3293
5329
8622
150457
4
3410
5212
8622
147047
5
3531
5090
8622
143515
Remaining amount payable=$143,515-$50,000=$93515/-
EMI=[P*R*(1+R)n] / [(1+R)n-1] =718
=[93515*0.003*(1.003)n]/[(1.003)n-1]
=13yrs 10months
(3).Revision of EMI amount:-
EMI=[P*R*(1+R)n] / [(1+R)n-1] =$468/- [PMT(0.035/12, 25*12, 143,515)]
Year
Principal
Interest
Total Payment
Principal outstanding
1
3071
5551
8622
156929
2
3180
5442
8622
153750
3
3293
5329
8622
150457
4
3410
5212
8622
147047
5
3531
5090
8622
143515
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