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16 September, 02:25

You are seeking a fixed-rate mortgage of $195,000 with a term of 30 years. Your bank quotes an APR of 6.2 percent, compounded monthly. You can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment

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  1. 16 September, 02:31
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    Our answer is 202,828.62

    Explanation:

    FV of Mortgage Payment = 195000 * (1+r

    Rate per month = 6.2%/12

    Number of Periods = 12*30 = 360

    FV of Mortgage Payment = 195000 * (1+r) n = 195000 * (1+6.2%/12) 360 = 1,246,644.78

    FV of Annuity = 1000 * ((1+r) n-1) / r = 1000 * ((1+6.2%/12) 360-1) / 6.2%/12 = 1,043,816.16

    Balloon Payment = 1,246,644.78 - 1,043,816.16 = 202,828.62
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