Question

You have a mortgage of $125,600.00 at a 4.95% APR. You make a payment of $1,500.00 each month. What is your principal balance at the beginning of the third month?

$122,600.00
$123,632.15
$123,636.20
$122,654.30

Answer 1

$123,632.15. Just took the test and this is the correct answer.

Answer 2

After second payment the principal balance at the beginning of the third month is $123,632.15

Explanation:

Monthly Interest = Yearly Interest / 1200

Interest Paid = Previous Balance × Monthly Interest Rate

Equity = Monthly Payment - Interest Paid

New Balance = Previous Balance - Equity

Monthly Interest = 0.004125

After the FIRST payment

Interest Paid = 125,600.00 × 0.004125

Interest Paid = 518.10

Equity = 1,500.00 - 518.10

Equity = 981.90

New Balance = 125,600.00 -981.90

124,618.10

After the SECOND payment

Interest Paid = 124,618.10 × 0 .004125

Interest Paid = 514.05

Equity = 1,500.00 - 514.05

Equity = 985.95

New Balance = 124,618.10 -985.95 =

123,632.15

After second payment the principal balance at the beginning of the third month is $123,632.15