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You take out a 20-year $280,000 mortgage loan with an APR of 6% and monthly payments
You take out a 20-year $280,000 mortgage loan with an APR of 6% and monthly payments. In 16 years you decide to sell your house and pay off the mortgage. What is the principal balance on the loan? (Round the monthly loan payment to 2 decimal places when computing the answer. Round your answer to 2 decimal places.)
Expert Solution
First we calculate Monthly Payment using PMT Function in Excel:
=pmt(rate,nper,-pv,fv)
Here,
PMT = Monthly Payment = ?
Rate = 6%/12 = 0.5%
Nper = 20 years*12 months = 240 months
PV = $280,000
FV = 0
Subtituting the values in formula:
=pmt(0.5,240,-280000,0)
PMT or Monthly Payment = $2,006.01
Remaining life of loan = 4 years or 48 months
Balance Outstanding after 16 years = $2,006.01 * PVIFA(0.5%, 48)
Balance Outstanding after 16 years = $2,006.01 * (1 - (1/1.005)^48) / 0.005
Balance Outstanding after 16 years = $2,006.01 * 42.58032
Balance Outstanding after 16 years = $85,416.55
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