Question

Kayla is financing $168,125 to purchase a house. She obtained a 25/8 balloon mortgage at 3.85%. What will her balloon payment be

Answer 1

$130,626.56

Explanation:

Kayla is financing $168,125 to purchase a house. She obtained a 25/8 balloon mortgage at 3.85%. What will her balloon payment be?

We are told that: She obtained a 25/8 balloon mortgage at 3.85%

This means the loan is amortized for 25 years and she would be monthly payment for 8 years before making the balloon payment.

Step 1

We find Monthly payments

Pmt = (A * i * (1 + i)ⁿ) / ((1 + i)ⁿ - 1)

Where:

Pmt - monthly payment;

A - Loan amount = $168,125

i - periodic interest rate = 3.85% = 0.0385

and

n - number of periods =

1 year = 12 months

8 years = x

x = 8 × 12 months = 96 months

n = 96 months

Pmt = (168,125 × 0.0385 * (1 + 0.0385)⁹⁶) / ((1 + 0.0385)⁹⁶- 1)

Pmt = $873.56

Step 2

When we find the monthly payment, we can compute the balance due after the term of a balloon loan.

B = (A * (1 + i)ⁿᵇ) - Pmt / i * ((1 + i)ⁿᵇ - 1)

Where:

B - Balloon payment

nb - Number of balloon loan periods =

Pmt - Monthly payment = $873.56

B = (168,125 × (1 + 0.0385)⁹⁶) - 873.56 / 0.0385 × ((1 + 0.0385)⁹⁶- 1)

B = $130,626.56