Question

A partially amortizing loan of $200,000 is made with 4.55% annual interest. A balloon of $20,000 exists on the loan. If the monthly payments are $2,500, in how many years will the loan be fully repaid?

Answer 1

7.28 years

Explanation:

Given that:

A partially amortizing loan of with a present value = $200000

is made with a 4.55% annual interest rate.

i.e rate (4.55/100) ÷ 12

= 0.0455 ÷ 12

= 0.00379

A balloon of $20,000 exists on the loan

This implies that the Present value of the loan = 20000

If the monthly payments PMT are $2,500

The number of years that it will require for the loan to be fully repaid can be calculated by using the EXCEL FUNCTION (=NPER(0.00379;-2500;200000;-20000;0) )

= 87.3997 /12

= 7.28 years

The Excel computation can be found in the attached file below