Question

Jill Barley obtained a 25-year, $60,000.00 mortgage loan from University

Savings and Loan Association. The interest rate is 6 percent. The monthly
payment is $386.40. For the first payment, what is the interest? What is the
payment to principal? What is the new balance?

Answer 1

a. Interest = $300

b. Payment to principal = $86.40

c. New balance = $‭59,913.6‬0

Explanation:

The monthly payment has both an interest component and a principal repayment component.

The interest component is based on the total principal still due at the time and the principal repayment component will be the rest of the payment.

As the interest is listed in annual terms, it needs to be made a monthly rate:

= 6%/12 months

= 0.5%

Interest = 60,000 * 0.5%

= $300

Payment to principal = 386.40 - 300

= $86.40

New balance = Amount due - payment to principal

= 60,000 - 86.40

= $‭59,913.6‬0