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28 August, 00:48

7. A borrower obtains a $100,000 mortgage loan for 30 years at a 7.5% interest rate. If the monthly payments of $902.77 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment?

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  1. 28 August, 00:50
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    The principal balance is $99,722.23

    Explanation:

    For computing the principal balance, we need the following calculation which is shown below:

    1. First we have to compute the 1 month interest payment which equals to

    = Note amount * rate * 1 month : total months in a year

    = $100,000 * 7.5% * 1 : 12

    = $625

    2. Now deduct the first month interest from installment amount which equals to

    = Installment amount - Interest amount

    = $902.77 - $625

    = $277.77

    3. Now subtract step 2 amount from notes amount which equals to

    = Notes amount - principal amount

    = $100,000 - $277.77

    = $99,722.23

    Hence, the principal balance is $99,722.23
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