Question

Mr and Mrs Chan take out a $100 000 home loan at 8% p.a. reducible interest over 25 years.

Interest is calculated and added on the first of each month. They make a payment of $775 each
month. Calculate:
(a) The interest added after one month
(b) The balance owing after one month.

if possible, please provide reducible interest conversion table

Answer 1

Explanation:

To calculate the interest added after one month and the balance owing after one month for a reducible interest home loan, you can follow these steps. First, I'll provide the calculation for the interest added after one month, and then I'll provide a simple conversion table.

Interest calculation:

1. Convert the annual interest rate to a monthly rate. In this case, the annual rate is 8%, so the monthly rate is (8% / 12) = 0.6667% or 0.006667 as a decimal.

(a) The interest added after one month:

Interest = Principal Balance * Monthly Interest Rate

Interest = $100,000 * 0.006667 = $667

(b) The balance owing after one month:

Monthly Payment = $775

Principal Reduction = Monthly Payment - Interest

Principal Reduction = $775 - $667 = $108

New Balance = Principal Balance - Principal Reduction

New Balance = $100,000 - $108 = $99,892

Now, you can create a simple reducible interest conversion table:

| Month | Beginning Balance | Payment | Interest | Principal Reduction | Ending Balance |

|-------|-------------------|---------|----------|--------------------|----------------|

| 1 | $100,000 | $775 | $667 | $108 | $99,892 |

| 2 | $99,892 | $775 | ... | ... | ... |

| 3 | ... | ... | ... | ... | ... |

| ... | ... | ... | ... | ... | ... |

| 300 | ... | ... | ... | ... | ... |

You can continue this table for the remaining months over the 25-year loan term. Each month, you calculate the interest, principal reduction, and ending balance based on the formulas provided.