Question

If a $40,000 mortgage for a term of 20 years is originated at an 8% interest rate, with monthly mortgage payments of $334.58, what is the principal balance remaining after the second monthly payment?

Answer 1

To find the principal balance remaining after the second monthly payment, subtract the payment amount from the remaining balance after the first payment.

Step-by-step explanation:

To find the principal balance remaining after the second monthly payment, we need to find the remaining balance after the first payment and then subtract the payment amount.

Each monthly payment of $334.58 pays off part of the principal and part of the interest. The formula to calculate the remaining balance after each payment is:

Remaining Balance = Previous Remaining Balance - Principal Part of Payment

Since the original loan amount is $40,000 and the monthly interest rate is 8%/12, the interest portion of the payment for the first month is:

Interest Part of Payment = Principal Balance x Monthly Interest Rate

Then, we can calculate the principal portion of the payment:

Principal Part of Payment = Total Payment - Interest Part of Payment

Using this formula, we can calculate the principal balance remaining after the second monthly payment.