Purchase Solution

# Business Math : Mortgage, Interest and Amortization

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A house worth \$70,000 is purchased with a down payment of \$20,000 and a mortgage amortized over 20 years. If the interest rate is 14% compounded semi- annually;

a. Determine the size of each monthly payment.

b. How much of the 60th payment goes to interest and how much to principal repayment?

c. Determine the outstanding principal at the end of the 5 year term.

d. What is the remaining amortization period on this mortgage?

e. If the mortgage is renewed at the end of the first term for another 5 year term at 8% compounded semi-annually, how much are the new monthly payments?

##### Solution Preview

a. Determine the size of each monthly payment.
PV=70000-20000=50000
N=20*2=40 (because compounded semi- annually)
Interest rate = 14%/2=7%
FV=0
Use either financial calculator or EXCEL,
Compute Payment = \$3750.46
Then monthly payment is 3750.46/6=\$625

b. How much of the 60th payment goes to interest and how much to principal repayment?

The ...

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