Question

Problem #2 (30%) To buy a house you ask a bank for a mortgage loan of $ 400,000, repayable in 30 years of monthly payments at a yearly interest rate of 3%. After 20 years (240 monthly payments) you decide to pay off the remainder of the loan. A) What is your monthly payment? B) What sum you must pay to the bank to extinguish your loan?

Answer 1

A)

Loan amount (PV) =$ 400,000

Number of monthly payments = 30 *12 = 360 payments

Interest rate = 3% pa = 3%/12 per month

Monthly payment(PMT) =
=pmt(3%/12,360,400000 PMT(rate, nper, pv, [fv], [type])
= $ 1,686.42

B)

Payments after 20 years = 1,686.42 * 20 = $ 33,728.32

Initial negotiated payment for 30 years = 1,686.42 * 30 = $ 50,592.48

Sum needed to extinguish the loan = $ 50,592.48 - $ 33,728.32 = $ 16,864.16