Question

7. A borrower obtains a $100,000 mortgage loan for 30 years at a 7.5% interest rate. If the monthly payments of $902.77 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment?

Answer 1

The principal​ balance is $99,722.23

Step-by-step explanation:

For computing the principal balance, we need the following calculation which is shown below:

1. First we have to compute the 1 month interest payment which equals to

= Note amount × rate × 1 month ÷ total months in a year

= $100,000 × 7.5% × 1 ÷ 12

= $625

2. Now deduct the first month interest from installment amount which equals to

= Installment amount - Interest amount

= $902.77 - $625

= $277.77

3. Now subtract step 2 amount from notes amount which equals to

= Notes amount - principal amount

= $100,000 - $277.77

= $99,722.23

Hence, the principal​ balance is $99,722.23