Question

An $284,000 loan at 5.5% annual interest had principal and interest payments of $1612.52 per month. How much of the second month's payment would be applied to the principal

Answer 1

Principal = $312.27

Step-by-step explanation:

To find out the monthly principal amount, you have to keep in mind that the monthly installment will change as well as the interest portion too. The following steps will help to solve the problem:

Since we do not know what should be our next installment neither the interest. We can determine 1 year's interest by-

Loan Amount × Interest rate = $284,000 × 5.5% = $15,620 (For a year)

Monthly Interest = $15,620 ÷ 12 months = $1,301.67.

Therefore, Principal amount = Interest Principal - Interest

Principal amount = $1612.52 - $1,301.67 = $310.85

After the first installment (excluding interest), total loan amount = $284,000 - $310.85 = $283,689.15

Now, The interest for the rest of the principal (1 year) = $283,689.15 × 5.5%

= $15,603

Monthly interest = $15,603 ÷ 12 = $1,300.25

Since, we know the monthly installment remains the same, the 2nd month's installment = $1612.52

The principal in the second month = $1612.52 - $1,300.25 = $312.27.