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monroe17

  • 2 years ago

Miss Crystal Palace just purchased – you guessed it – a crystal palace for $650,000. She makes a 25% down payment and finances the balance with a mortgage at an interest rate of 5.6% for 15 years, making monthly payments. a. What amount will she borrow? b. Complete the amortization table for the first three payments. (Show all work!)

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  1. phi
    • 2 years ago
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    can you answer (a) ? 75% of 650,000 or 650,000- 25% of 650,000

  2. monroe17
    • 2 years ago
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    162500?

  3. monroe17
    • 2 years ago
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    oh wait no. 649999.75?

  4. monroe17
    • 2 years ago
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    no isn't my first answer right?

  5. phi
    • 2 years ago
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    If you put down a down-payment, do you expect it to be all 650,000? to do this, remember that 25% is the same as 25/100 (or 1/4)

  6. monroe17
    • 2 years ago
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    is it 162500?

  7. phi
    • 2 years ago
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    that is the down payment. How much is the loan?

  8. monroe17
    • 2 years ago
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    162500(1+0.056/12)^12*15 162500(1+0.056/12)^180 (162500)(2.311845392)=$375,674.88

  9. monroe17
    • 2 years ago
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    that's what I did...

  10. monroe17
    • 2 years ago
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    ohh in my equation where i put 162500.. is that supposed to be 487500 instead?

  11. phi
    • 2 years ago
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    162,500 is 1/4 of the 650,000 162,500 is the amount paid up front. You must now borrow the remainder. so your work up above looks good except 162500 is not the correct amount for the loan

  12. monroe17
    • 2 years ago
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    the amount of the loan is 1,127,024.63?

  13. phi
    • 2 years ago
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    For (a), I think they want 487,500 to do (b) you have to figure out how much the total loan ends up costing. Is that the 1,127,024 number?

  14. monroe17
    • 2 years ago
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    yes the total loan I calculated is 1,127,024.63 I believe.

  15. phi
    • 2 years ago
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    now find the monthly payment

  16. monroe17
    • 2 years ago
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    how? what formula?

  17. monroe17
    • 2 years ago
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    6261.25 a month?

  18. phi
    • 2 years ago
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    now you can do the amortization schedule start with the loan balance at the start 487500 add one month of interest (0.056/12)*487500 then subtract off the payment to get the loan balance for the next month. do the same thing for the 2nd (and 3rd) month, except use the new loan principal

  19. monroe17
    • 2 years ago
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    what new loan principal?

  20. phi
    • 2 years ago
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    when you make a payment, the amount you owe goes down

  21. monroe17
    • 2 years ago
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    (0.056/12)*487500= 2275

  22. monroe17
    • 2 years ago
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    487500-2275= 485225 for the next month?

  23. monroe17
    • 2 years ago
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    2264.38--485235.62 2264.43--482971.19

  24. monroe17
    • 2 years ago
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    how do I put that in a chart though with the.. amount of payment interest payment applied to principal and balance?

  25. phi
    • 2 years ago
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    OK, I just checked about loans. there is a formula to figure out the monthly payment FV= payment *( (1+i)^n -1)/i where future value FV is the number you found, does this look familiar?

  26. monroe17
    • 2 years ago
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    yeah, give me a sec.

  27. monroe17
    • 2 years ago
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    so the formula I used gave me 9268.65 as the monthly payment

  28. phi
    • 2 years ago
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    how? I get something else

  29. monroe17
    • 2 years ago
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    P=1127024.63 n=180 r/m=0.56/12=0.0046666667 1127024.63(1+0.0046666667)^180=R[(1+0.0046666667)^180-1)/(0.0046666667)] 2605506.713=R(281.1097278) R=9268.65

  30. monroe17
    • 2 years ago
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    the amount is 1127024.63 the annual rate is 5.6% and the time is 15 years

  31. monroe17
    • 2 years ago
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    and the interest payment is 5259.45

  32. phi
    • 2 years ago
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    I match up, but with 1127024.63=R(281.1097278)

  33. monroe17
    • 2 years ago
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    4009.2 is the applied principal and the balance is 1127024.63

  34. monroe17
    • 2 years ago
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    do I not solve 1127024.63(1+0.0046666667)^180 that?

  35. monroe17
    • 2 years ago
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    because in this example I have is shows to do that..

  36. phi
    • 2 years ago
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    for your formula, it looks like you should use the original loan amount on the left hand side. Do you notice that the left side is future value (1,237,024) which can be calculated as 487500*(1+0.056/12)^180

  37. monroe17
    • 2 years ago
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    ohh so after solving it becomes 1127024.63

  38. monroe17
    • 2 years ago
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    so is the monthly payment 4009.20?

  39. phi
    • 2 years ago
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    yes. so now to the amort. to answer amount of payment interest payment applied to principal and balance? you have the first part. interest is principal* 0.0046666667 (5.6% /12) so you start with P (487500) add interest subtract payment get new P (call it P2 for second month) The interest payment is the amount of interest due. the applied to principal is the amount of the payment left over after paying the interest P2 is the balance

  40. monroe17
    • 2 years ago
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    wait wait.. is the interest payment 5259.45? (1127024.63)(0.0046666667)(1)

  41. phi
    • 2 years ago
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    No, you use Present value (not future value) when you apply the interest.

  42. monroe17
    • 2 years ago
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    (487500)(0.0046666667)(1)=2275.00

  43. phi
    • 2 years ago
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    that looks good. now the payment pays that interest and what is left over pays down the principal

  44. monroe17
    • 2 years ago
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    4009.20-2275.00=1734.20?

  45. phi
    • 2 years ago
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    so now how much is the new principal?

  46. monroe17
    • 2 years ago
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    485765.8?

  47. phi
    • 2 years ago
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    so put those numbers in the first row. now do it again with P=485765.80

  48. monroe17
    • 2 years ago
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    so.. 1734.20*0.0046666667*1?

  49. phi
    • 2 years ago
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    You seem to be missing the main point. you pay interest on the dollars you owe (think of it as rent) after one payment you owe 485765.80. that is what the interest is on (not the 1734)

  50. monroe17
    • 2 years ago
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    2266.91? that is the next interest payment for month 2?

  51. phi
    • 2 years ago
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    yes

  52. monroe17
    • 2 years ago
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    then 1742.29 is the applied principal for month 2?

  53. phi
    • 2 years ago
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    yes

  54. monroe17
    • 2 years ago
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    then the next balance is 484023.51?

  55. phi
    • 2 years ago
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    yes. one more payment to go

  56. monroe17
    • 2 years ago
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    2258.78 for the interest payment?

  57. monroe17
    • 2 years ago
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    and 1750.42 and the applied principal?

  58. phi
    • 2 years ago
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    yes

  59. phi
    • 2 years ago
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    Here is a site that computes the amort http://bretwhissel.net/cgi-bin/amortize

  60. monroe17
    • 2 years ago
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    thank you so much for your help!

  61. phi
    • 2 years ago
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    It helped remind me how to do this stuff. It is a bit complicated.

  62. monroe17
    • 2 years ago
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    haha yeah, well before I had absolute no idea where to start. Thank you so much for helping me..

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