Final answer:
The interest included in a mortgage payment can be calculated by monthly dividing the annual interest rate by 12, then multiplying the mortgage balance by this monthly rate. The principal portion is the payment minus the interest, and the new balance is the old balance minus the principal payment. So, the best answer is b, Calculate the portion of the monthly mortgage payment that will be used to reduce the principal balance.
Step-by-step explanation:
When we are dealing with mortgage payments, it is important to differentiate between the principal and interest components of the payment.
On February 1, if Sam Morgan has an outstanding mortgage balance and the loan carries an annual interest rate, we can calculate the interest portion of the February payment by computing the rate on a monthly basis and applying it to the outstanding balance.
To calculate the interest included in the February payment:
Divide the annual interest rate by 12 to find the monthly interest rate.
Multiply the outstanding mortgage balance by the monthly interest rate.
Round the resulting figure to the nearest cent.
For example, with an interest rate of 6 percent per annum on a $100,000 balance:
The monthly interest rate would be 0.06 / 12 = 0.005.
The interest for the month would be $100,000 * 0.005 = $500.
The portion of the monthly mortgage payment used to reduce the principal balance is simply the total payment minus the interest portion.
The new mortgage balance after the February payment is the previous outstanding balance minus the principal portion of the payment.
So, the best answer is b, Calculate the portion of the monthly mortgage payment that will be used to reduce the principal balance.
Q: On February 1, Sam Morgan owns a home with an outstanding mortgage balance. The loan carries an interest rate of [insert interest rate]% per annum. If Sam makes the February monthly mortgage payment of $[insert payment amount], calculate the following:
(a) Determine the amount of interest included in the February payment (round your answer to the nearest cent).
(b) Calculate the portion of the monthly mortgage payment that will be used to reduce the principal balance.
(c) Find the new mortgage balance after Sam makes the February monthly mortgage payment.