Question

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!)

Answer 1

can you answer (a) ? 75% of 650,000 or 650,000- 25% of 650,000

Answer 2

162500?

Answer 3

oh wait no. 649999.75?

Answer 4

no isn't my first answer right?

Answer 5

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)

Answer 6

is it 162500?

Answer 7

that is the down payment. How much is the loan?

Answer 8

162500(1+0.056/12)^12*15
162500(1+0.056/12)^180
(162500)(2.311845392)=$375,674.88

Answer 9

that's what I did...

Answer 10

ohh in my equation where i put 162500.. is that supposed to be 487500 instead?

Answer 11

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

Answer 12

the amount of the loan is 1,127,024.63?

Answer 13

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?

Answer 14

yes the total loan I calculated is 1,127,024.63 I believe.

Answer 15

now find the monthly payment

Answer 16

how? what formula?

Answer 17

6261.25 a month?

Answer 18

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

Answer 19

what new loan principal?

Answer 20

when you make a payment, the amount you owe goes down

Answer 21

(0.056/12)*487500= 2275

Answer 22

487500-2275= 485225 for the next month?

Answer 23

2264.38--485235.62
2264.43--482971.19

Answer 24

how do I put that in a chart though with the..
amount of payment
interest payment
applied to principal and
balance?

Answer 25

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?

Answer 26

yeah, give me a sec.

Answer 27

so the formula I used gave me 9268.65 as the monthly payment

Answer 28

how? I get something else

Answer 29

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

Answer 30

the amount is 1127024.63
the annual rate is 5.6%
and the time is 15 years

Answer 31

and the interest payment is 5259.45

Answer 32

I match up, but with
1127024.63=R(281.1097278)

Answer 33

4009.2 is the applied principal and the balance is 1127024.63

Answer 34

do I not solve 1127024.63(1+0.0046666667)^180 that?

Answer 35

because in this example I have is shows to do that..

Answer 36

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

Answer 37

ohh so after solving it becomes 1127024.63

Answer 38

so is the monthly payment 4009.20?

Answer 39

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

Answer 40

wait wait.. is the interest payment 5259.45?
(1127024.63)(0.0046666667)(1)

Answer 41

No, you use Present value (not future value) when you apply the interest.

Answer 42

(487500)(0.0046666667)(1)=2275.00

Answer 43

that looks good. now the payment pays that interest and what is left over pays down the principal

Answer 44

4009.20-2275.00=1734.20?

Answer 45

so now how much is the new principal?

Answer 46

485765.8?

Answer 47

so put those numbers in the first row. now do it again with P=485765.80

Answer 48

so.. 1734.20*0.0046666667*1?

Answer 49

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)

Answer 50

2266.91? that is the next interest payment for month 2?

Answer 51

yes

Answer 52

then 1742.29 is the applied principal for month 2?

Answer 53

yes

Answer 54

then the next balance is 484023.51?

Answer 55

yes. one more payment to go

Answer 56

2258.78 for the interest payment?

Answer 57

and 1750.42 and the applied principal?

Answer 58

yes

Answer 59

Here is a site that computes the amort
http://bretwhissel.net/cgi-bin/amortize

Answer 60

thank you so much for your help!

Answer 61

It helped remind me how to do this stuff. It is a bit complicated.

Answer 62

haha yeah, well before I had absolute no idea where to start. Thank you so much for helping me..