Mr Mrs Alan Bell obtain a 25year 110000 conventional mortga

Mr. & Mrs. Alan Bell obtain a 25-year, $110,000 conventional mortgage at 10.5% on a house selling for $160,000. Their monthly mortgage payment, including principal and interest, is $1038.60. They also pay 2 points at closing.

a) Determine the total amount the Bells will pay for thier house.

b) How much of the cost will be interest (including the two points)?

c) How much of the first payment on the mortgage is applied to the principal?

Solution

Hi,

Please find the detailed answer as follows:

Rate of Interest Per Year = 10.5/(2*100) = 8.75%

Part A:

1038.60 = Prinicipal*(.00875/(1-(1+.00875)-300))

on Solving, we get P as 110000

Since it is mentioned that there are 2 points, it would mean 2*110000= $220000

Total Amount Paid to Purchase House = $363780 (313780 + 50000)

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Part B:

Total Interest Paid with 2 Points = 1038.60*300 + 2200 = $313780

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Part C:

Mortgage Amount = Actual Price - Loan Amount = 160000 - 110000 = $50000

Thanks.