Question

12. Yvette is considering a 7/23 balloon mortgage with an interest rate of 4.75%

to purchase a house for $146,000. What will be her balloon payment at the end of
7 years if she chooses this mortgage?

Answer 1

$117,783.05

Explanation:

Looking at the above question,

Step 1

Calculate the number of monthly payments for 7 years.

The formula we would be using is given as:

Monthly payment = [Loan amount × (rate/number of year)] ÷ [1 - (1 +r/n)^nt)]

Loan amount =$146,000

Rate = 4.75% = 0.0475

n = number of payments = 12

t= number of years = 23

Monthly payment = [ 146,000× (0.0475/12)] ÷ [1 - (1 +0.0475/12)^-276)]

Monthly payment = $870.49

Step 2

Calculate the amount left after 7 years using the formula

Ballon payment after 7 years = Loan amount ( 1 + r)ⁿ - P[(1 +r)ⁿ - 1 /r]

r = 4.75% for 12 years

= 146,000( 1 + 0.0475/12)^84 - 870.49[((1 + 0.0475/12)^84 - 1)/0.0475/12]

= $117,783.05