Bob and Mary want to buy a house they have been renting from

Bob and Mary want to buy a house they have been renting from their landlord. The landlord agrees to sell it to them for $60,000, provided the couple can come up with $5000 down payment. He agrees to finance the balance with a 20 year simple interest amortized loan at a fixed interest rate of 5% per year. Find the monthly payment and prepare an amortization schedule for the first two months of the loan.

Payment Number Principal Portion Interest Portion Monthly Payment Balance

0

1

2

Solution

Here without interest, one month payment = 55000/240 = 229.166

(It is because there are total 240 months in 20 years)

Further monthly rate of interest = 0.05/12= 0.004167

So clearly in the beginning for first row, calculations will be done as :

For month 0

Payment : $ 55000

Interest : 0

Monthly installment : 0

Balance : $55000

for first month 1 :

Payment ; 1

Principal ; $55000

Interest : [55000 x 0.004167=229.166]

Monthly installment =229.166+229.166=458.33

Balance : $55000 - $ 458.33 = $54541.67

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for second month :

Payment ; 2

Principal ;   $54541.67

Interest : [ $54541.67 x 0.004167=227.275]

Monthly installment =229.166+227.275=456.44

Balance :   $54541.67 - $ 456.44 =$54085.23

Answer