TABLE 15.1Amortization table (mortgage principal and interest per $1,000) INTERE
ID: 2818996 • Letter: T
Question
TABLE 15.1Amortization table (mortgage principal and interest per $1,000) INTEREST Term 64% 9% 10% 10% 11% in years 10 12 5% 55% 6% 7% 71% 8% 85% 9% 9.89 10.6 10.86 36 .62 1.88 12.14 12.40.67 2.94 13.22 3.50 13.78 8.52 7.15 7.9 8.18 8.44 8.72 8.99 9.28 9.56 9.85015 10.45 10.75 1.06 1.37 6.52 7.29 7.56 7.84 8.12 8.40 8.69 8.99 9.299.9 9.90 10.22 0.54 0.86 5.80 6.60 6.88 7.17 746 7.76 8.06 8.37 8.68 9.00 9.33 9.66 9.99 10.33 5.44 6.20 6.51 5.01 4.50 5.37 5.68 6.00 6.33 6.66 7.00 7.34 7.69 8.41 3.99 5.055.38 5.7 9.25 9.51 9.76 0.02 0.29 0.56 0.83 I1 1.39 I67 11.96 2.25 2.54 17 20 6.82 7.13 7.44 7.75 8.07 8.39 8.72 9.05 9.39 9.73 0.08 25 30 35 5.85 6.156.45 6.76 7.07 7.39 7.72 8.068.40 8749.09 9.45 9.8 8.78 9.15 9.53 7.477.848.22 8.60 8.99 9.37 6.05 6.39675 7.1Explanation / Answer
Answer a. Initial amount of cash needed = 20% down payment + Cost for recording the deed + Cost of credit and appraisal report + Cost of preparation of appropriate documents + Transfer tax of 2% of purchase price + Loan origination fee of 2% of the mortgage amount
Thus, Initial amount of cash needed = 20% * $272,000 + $27 + $152 + $45 + 2% * $272,000 + 2% * 80% * $272,000 = $64,416.00
Answer b. Monthly payment can be calculated using a financial calculator or the PMT function in Microsoft Excel. The inputs needed for the function are as follows:
PV = Value of the mortgage amount = 80% * $272,000 = $217,600
NPER = Number of periods in months = 30 * 12 = 360
Interest rate as per repayment frequency = 10.5% / 12 = 0.875%
Using the function we get the value of monthly payment as $1,990.47
The same can also be calculated using the table given in the question above. Since the monthly payment per $1,000 of mortgage for a tenure of 30 years and an interest rate of 10.5% as per the table is $9.15, we can use the same to calculate the monthly payment for a $217,600 mortgage as:
$9.15 * $217600 / $1,000 = $1,991.04 (answer differs because the Microsoft Excel calculation is more accurate with little to no rounding up of intermediate calculations, while the table above gives a more simplistic estimate per $1,000 which is used to estimate for higher mortgage amounts).
Answer c. The total cost of interest over the life of the mortgage can be calculated using the function CUMIPMT (which gives the cumulative interest payment over a mentioned period of the mortgage) in Microsoft Excel. The inputs for the function are as below:
PV = Value of the mortgage amount = 80% * $272,000 = $217,600
NPER = Number of periods in months = 30 * 12 = 360
Interest rate as per repayment frequency = 10.5% / 12 = 0.875%
Start period = 1 (indicating the 1st month of payment)
End period = 360 (indicating the last month of payment)
Type = 0 (indicating that the interest is paid towards the end of each month)
Using this function, we get the total cost of interest over the life of the mortgage as $498,970.17. (the same can be verified using an amortization schedule which gives the exact same answer). We may also calculate the same by multiplying the monthly payment by 360 (number of months equivalent to 30 years) and subtracting the initial mortgage amount from the same.
Using the payment value based on Excel in Answer b, we get this:
Total interest cost = $1,990.47*360 - $217,600 = $498,969.20
Using the payment value based on the table given in question in Answer b, we get this:
Total interest cost = $1,991.04*360 - $217,600 = $499,174.40
P.S. - Since the method of calculation to be used for various questions is not specified in the question, kindly use the solution that is suitable as per your requirement.
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