Question

Michael obtains a 30/8 balloon mortgage to finance $425,500 at 6.55%. How much principal and interest will he have already paid when his balloon payment is due?

Answer 1

$259 532

Explanation:

Step 1. Calculate the monthly payments on a 30-year loan.

The formula for the monthly payment (P) on a loan of A dollars that is paid back in equal monthly payments over n months, at an annual interest rate

of r % is

`P = A((r)/(1-(1+r)^(-n)))`

Data:

We must express the interest rate on a monthly basis.

i = 6.55 %/yr = 0.545 83 %/mo = 0.005 4583

A = $425 500

n = 360 mo

Calculation:

`P = 425 500((0.005 4853)/(1-(1+0.005 4583)^(-360)))`

`P = \frac{2332.22}{{1- {1.005 4583}}^(-360)}`

`P = (2332.52)/(1 – 0.140907)`

`P = (2332.52)/(0.859 093)`

P = $2703.46

B. Total Payment (T) after 8 years

T = nP

T = 96 × 2703.46

T = $259 532

Michael will have paid $259 532 at the end of eight years.