Marcel Thiessen purchased a home for $202,800 and obtained 15-year fixed rate mortgage at 8% after paying a down payment of 10%

Economics Feb 10, 2021

Marcel Thiessen purchased a home for $202,800 and obtained 15-year fixed rate mortgage at 8% after paying a down payment of 10%. Of the first month's mortgage payment, how much interest and how much is applied to the principal?

Expert Solution

Computation of Monthly Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Monthly Payment = ?

Rate = 8%/12 = 0.6667%
Nper = 15 years * 12 months = 180 months

PV = $202,800*(1-10%) = $182,520

FV = 0

Substituting the values in formula:

=pmt(0.6667%,180,-182520,0)

PMT or Monthly Payment = $1,744.30

1) Interest = $182,520*8%/12 = $1,216.80

2) Applied to Principal = $1,744.30 - $1,216.80 = $527.50

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