Homework SourseYou borrow 125000 to buy a house Your mortgage rate is 6 per
| You borrow $125,000 to buy a house. Your mortgage rate is 6% per year (0.5% per month). |
| The term of the mortgage is 30 years and you will have the same required payment every month. Ignore taxes. |
| (i) What is your monthly mortgage payment? |
| (ii) After 30 months of payments, what is the remaining balance on your mortgage? |
| (iii) For the first 30 months you make the required payment. Beginning in the 31st month you pay an extra $100 per month |
| every month (you pay the required payment plus $100). These extra payments will shorten the life of your mortgage. |
| How long will it take to pay off the mortgage? |
| You borrow $125,000 to buy a house. Your mortgage rate is 6% per year (0.5% per month). |
| The term of the mortgage is 30 years and you will have the same required payment every month. Ignore taxes. |
| (i) What is your monthly mortgage payment? |
| (ii) After 30 months of payments, what is the remaining balance on your mortgage? |
| (iii) For the first 30 months you make the required payment. Beginning in the 31st month you pay an extra $100 per month |
| every month (you pay the required payment plus $100). These extra payments will shorten the life of your mortgage. |
| How long will it take to pay off the mortgage? |
Solution
if simple interest is followed then S.I= principal X rate X years/100= $125000 X 6 X 30/100= $225000(total interest for 30 years)
1. monthly mortgage payment = $125000+$225000/360(toal no. of months in 30 years)= $972(approx.)
2. total amount due = $350000 (principal + interest) , then after 30 months the amount due will be $350000- (972 x 30)= $320840(approx.)
3. If from 31 month the amount of monthly payment is increased by $100, then total amount of monthly payment will be $1072 and the due amount after 30 months is $320840 , then resultant period to pay this amount will be 320840/1072=299.29 or 300 months means the mortage term is reduced by 30 months or 2 and half years. The mortgage will be paid in 25 years , 2 and half years earlier what it used to be.
