Final answer:
To determine the amount applied to the principal in the second month's mortgage payment, calculate the monthly payment using the formula for mortgage payment calculation. Subtract the interest portion from the monthly payment to find the amount applied to the principal.
Step-by-step explanation:
To determine the amount applied to the principal in the second month's mortgage payment, we first need to calculate the monthly payment. The loan amount is $170,000 and the annual interest rate is 7%. Since it is a 10-year loan, the number of months is 10 * 12 = 120. We can use the formula for mortgage payment calculation:
Monthly Payment = (Loan Amount * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Number of Months))
Plugging in the values, we have:
Monthly Payment = (170,000 * 0.07/12) / (1 - (1 + 0.07/12)^(-120))
Calculating this, we find that the monthly payment is approximately $2,093.92. Now, to determine how much is applied to the principal, we subtract the interest portion from the monthly payment. In the first month, the interest portion is calculated as:
Interest = Loan Amount * Monthly Interest Rate
So, the interest for the first month is 170,000 * 0.07/12 = $991.67. Therefore, the amount applied to the principal in the second month's mortgage payment is $2,093.92 - $991.67 = $1,102.25.