Question

You are seeking a fixed-rate mortgage of $195,000 with a term of 30 years. Your bank quotes an APR of 6.2 percent, compounded monthly. You can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment

Answer 1

Answer:

Our answer is 202,828.62

Explanation:

FV of Mortgage Payment = 195000*(1+r

Rate per month = 6.2%/12

Number of Periods = 12*30 = 360

FV of Mortgage Payment = 195000*(1+r)n = 195000*(1+6.2%/12)360 = 1,246,644.78

FV of Annuity = 1000 * ((1+r)n-1)/r = 1000 *((1+6.2%/12)360-1)/6.2%/12 = 1,043,816.16

Balloon Payment = 1,246,644.78 -  1,043,816.16 = 202,828.62