Question

Beth and Bryce sign on a $205,000 mortgage at a 5% annual interest rate for 30 years. This results in a monthly payment of $1100.48. If only the minimum payment is made in month one, how much of the first payment goes toward reducing her balance?

Answer 1

Answer: $246.31

Explanation:

The monthly payment of $1,100.48 is going to be divided into interest and principal repayment which is the one that reduces her balance.

The interest payment is based on the interest rate which is 5%.

Monthly interest is:

= 205,000 * 5% * 1/12 months because it is monthly

= $854.17

The amount that goes towards reducing her balance is:

= Monthly payment - Interest payment

= 1,100.48 - 854.17

= $246.31