Advanced Time Value of Money Problems Question 2 (2nd mortgage problem) You are considering the purchase of...

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Advanced Time Value of Money Problems
Question 2 (2nd mortgage problem)
You are considering the purchase of a $500,000 home. You plan totake a 30-year fixed mortgage after making a 20% downpayment toavoid PMI. Payments are to be made monthly (at the end of themonth) and the APR is 8%.
What is the monthly payment?
During what month does the principal portion first exceed theinterest portion? Are you surprised by your answer?
How long does it take to pay off your mortgage if you pay anadditional $300 towards principal each payment?
How long does it take to pay off your mortgage if you pay anadditional amount each month equal to the current monthâ€™sprincipal?

Answer & Explanation Solved by verified expert

4.3 Ratings (831 Votes)

To find out the monthly payment we follow the followingstepsWe are given the following informationr800n30frequency12PV080 x 500000 400000We need to solve the following equation to arrive at therequired PMTSo the PMT is 293506To find out the month in which the principal portionfirst exceed the interest portion we need to create the followingamortization scheduleOpening balance previous years See Answer

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