A person will buy a $250,000 home paying 20% down and financing the rest at the
ID: 2755058 • Letter: A
Question
A person will buy a $250,000 home paying 20% down and financing the rest at the annual interest rate of 7% compounded monthly. He will make monthly payments for 30 years to pay off the loan.
a) Find the monthly payment.
b) How much of the first payment is interest?
c) How much is still owed after 10 years? There are 2 ways to do this in the tvm- solver.
d) How much of the 121st payment is interest?
e) If he refinances after 10 years at annual interest rate 6% compounded monthly, what is his new payment, assuming the loan is paid off in the remaining 20 years.
Explanation / Answer
a)
Cost of purchase = $250,000.
Down payment at year 0 = $50,000.
Presene value = 200,000
Nper = 30 years*12 = 360 months.
rate = 0.07
Compute the monthly payment using excel function.
Pmt(Rate,Nper,PV,FV) = Pmt(0.07/12,360,-200000,0) = $1,330.60.
Therefore, the monthly payment is $1,330.60.
b)
Interest on first payment = $200,000*0.07 = $1166.67.
Total payment = 360 * 1330.60 = $479,017.80.
Future value after year 10.
FV(0.07/12,120,-1330.60,0) = $230,306.64.
Therefore, amount still owed = $479,017.80 -$230,306.64 = $248,711.15.
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