Rob Grier, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 10.5%, 20-year mortgage, payable at $998.38 per month. At the end of the first month, Rob receives a statement from the bank indicating that only $123.38 of principal was paid during the month. At this rate, he calculates that it will take over 67 years to pay off the mortgage. Is he right?

Question

Haylee Underwood

Business

15 July, 01:45

Rob Grier, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 10.5%, 20-year mortgage, payable at $998.38 per month. At the end of the first month, Rob receives a statement from the bank indicating that only $123.38 of principal was paid during the month. At this rate, he calculates that it will take over 67 years to pay off the mortgage. Is he right?

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Answers (1)

Know the Answer?

Beck · Answer 1

No

Explanation:

Rob is considering their principal payment will be 123.38 everytime.

It will increase through time while interest payment decrease.

Month Beg Cuota Rate Interest Principal payment Ending

1 100,000 998.38 0.00875 875 123.38 99,877

2 99,877 999.38 0.00875 873.92 125.46 99,751

3 99,751 1000.38 0.00875 872.82 127.56 99,624

4 99,624 1001.38 0.00875 871.77 129.67 99,494

5 99,494 1002.38 0.00875 870.57 131.81 99,362

6 99,362 1003.38 0.00875 869.42 133.96 99,228

The cuota and rate keep at the same level.

But the interest decrease, because each time the principal is lower, giving place to a higher repayment.

The loan will repay at 20 year as state in the mortgage