Audrey Sanborn has just arranged to purchase a $580,000 vacation home in the Bah

Question

Audrey Sanborn has just arranged to purchase a $580,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 6.4 percent APR, compounded monthly, and calls for equal monthly payments over the next 30 years. Her first payment will be due one month from now. However, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of Year 8. There were no other transaction costs or finance charges. How much will Audrey’s balloon payment be in eight years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Rate per month= 6.4%/12 = 0.533333% , Number of months= 12*30 = 360 months.

Loan amount = $580,000 * 0.80 = $464,000

Equated monthly installment = Loan amount / PVAF(0.53333%, 360) = 464,000 / 159.8707 = $2902.35

Now after 8 years or 96 months, Amount unpaid = 464000 - (2902.35 * 96) = $185374.77

But this is present value of balloon payment so gross payment which is to be paid in 8 years = $185374.77 / PVF(6.4%, 8 years) = $304497.45

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.