Calculating Amortization Schedule for Alan Frost's Mortgage
How much did Alan Frost purchase his new split-level home for? What was his down payment percentage?
Alan Frost purchased a new split-level home for $170,000, making a down payment of 20%. How much did he pay as a down payment?
What interest rate did Victory Bank offer to Alan for his 25-year mortgage?
Victory Bank offered Alan an interest rate of 11 3/4% for his 25-year mortgage. What is the equivalent interest rate in decimal form for calculations?
What is the formula used to calculate the monthly mortgage payment for an amortizing loan?
How can we calculate the monthly mortgage payment for Alan's loan amount using the formula for an amortizing loan?
How much will Alan's monthly mortgage payment amount to?
What is the total monthly payment that Alan will have to make towards his mortgage with Victory Bank?
Construct an amortization schedule for the first two months of Alan's mortgage payments
How can we break down the monthly mortgage payment into principal and interest payments for the first two months of Alan's loan repayment?
Answer:
Alan Frost purchased his new split-level home for $170,000 with a down payment of 20%. Victory Bank offered him an interest rate of 11 3/4% for his 25-year mortgage.
Calculating Alan Frost's Mortgage Amortization Schedule
Alan Frost decided to purchase a new split-level home for $170,000, and he made a down payment of 20%, which amounts to $34,000. This means the loan amount he took from Victory Bank is $136,000 ($170,000 - $34,000).
The annual interest rate offered by Victory Bank is 11 3/4%, which is equivalent to 0.1175 in decimal form. By dividing the annual interest rate by 12, we get the monthly interest rate of 0.00979.
Using the formula for an amortizing loan, we calculated Alan's monthly mortgage payment to be approximately $1,352.47. This monthly payment is divided between principal and interest, with the interest portion decreasing over time as the principal is paid down.
Constructing the amortization schedule for the first two months, we calculated that in the first month, Alan will pay $21.43 towards the principal, and in the second month, he will pay $18.19. The loan balance at the end of the second month will be $135,960.38.
By understanding how the monthly mortgage payment is distributed between principal and interest, Alan can better manage his finances and plan for his future payments.