2
$\begingroup$

What is the monthly payment for a $800,000 mortgage for the first 119 payments that is due in 10 years, has a 25 year amortization, at 5% interest? What is the amount of the 120th payment?

I use excel to compute the amortization table,

enter image description here

But, I'm still don't understand the question. If I finish the loan at payment 300, for 25 years or I ended at 120 with a full balloon payment.

I ask my professor and he told me: 'If mortgage due in 10 then final payment is a balloon payment including interest and principal'.

Question: I need to know what schedule I suppose to calculate (on excel or any other way that could be easier), and some hint to understand what actually the problem ask.

Thanks!

$\endgroup$
  • 1
    $\begingroup$ Well, it seems as though this is a balloon mortgage. Set to a $25$ year schedule (so the normal monthly coupon is the same as for an ordinary $25$ year mortgage). As it has a declared $10$ year final, however, the $120^{th}$ payment must include all remaining principal (the balloon) in addition to the normal scheduled interest payment. At least, that's how I read it. $\endgroup$ – lulu Dec 7 '15 at 15:11
  • $\begingroup$ Then, my last payment is the 120th, no? And I suppose to use a fixed interest for each payment?(5%)? $\endgroup$ – Electro82 Dec 7 '15 at 15:17
  • $\begingroup$ I hate to speak for your professor, but that would certainly be my reading of the question. $\endgroup$ – lulu Dec 7 '15 at 15:18
1
$\begingroup$

Let be $L=800,000$ the loan to be repayed in $t=25$ years (or $n=300$ months) and $P$ the monthly payment at nominal interest $i^{(12)}=5\%$ convertible monthly.

The effective monthly interest rate is $i_m=\frac{i^{(12)}}{12}=0.42\%$ an then we have $$ L=P\,a_{\overline{n}|i_m}=P\frac{1-(1+i_m)^{-n}}{i} $$ from wich we find the constant payment $$ P=\frac{L}{a_{\overline{300}|0.42\%}}=4,676.72 $$

| cite | improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.