Joshua finances $512,300 with a 30/11 balloon mortgage at 4.7%. How much will he pay for principal and interest over the life of the loan?

Question

anonymous · Answer

@ganeshie8 @whpalmer4

anonymous · Answer

just help me set up the problem adn ill try to figure out the answer

whpalmer4 · Answer

Okay, I'm not sure what a 30/11 balloon means — is that 30 year loan, but balloon due after 11 years?

whpalmer4 · Answer

Ah, I think that means the loan amortization is calculated as if a 30 year loan, but after 11 years the remaining balance is due in the final balloon payment.

So, calculate an amortization table for a 30 year loan, 4.7% APR.  Total up the interest paid in the first 11*12-1 = 131 payments.  Then total up the principal paid in those payments along with the remaining balance.

anonymous · Answer

can u set it up for me in a  formula?

anonymous · Answer

in an equation?

whpalmer4 · Answer

Sorry, I don't have a formula for you.  There are online calculators which will do it for you, or you can use a spreadsheet, or maybe someone has a formula...

anonymous · Answer

oh

anonymous · Answer

do u have i guess for this question?

anonymous · Answer

have choices

whpalmer4 · Answer

what are the choices, we can see if I figured it out correctly :-)

anonymous · Answer

okay ill poest em  A:$750,869.29

anonymous · Answer

B:752,436.54

anonymous · Answer

C:956,512.80

anonymous · Answer

D:536,378.10

anonymous · Answer

you got it?

anonymous · Answer

Hello?

whpalmer4 · Answer

ah, yes, I did get one of those.  made a mistake in my arithmetic the first time, though, so it didn't look like I did, had to redo it!

whpalmer4 · Answer

you can clearly rule out D, as you're going to pay $512,300 in principal and that only leaves 24,000 and change for interest, which is clearly too low for use of half a million for 11 years!

C also seems safe to rule out, as a rule of thumb is that a 30 year mortgage costs you about as much in interest as principal, and we are skipping 19 years of interest by doing the balloon payment.

to choose between A and B, though, you need to do the math, or be a lucky guesser...

whpalmer4 · Answer

Ah, found a formula for you: http://www.financeformulas.net/Loan_Balloon_Balance.html You'll need to figure out the regular payment to use it, but you should know how to do that, I hope. If not, you should be able to find it at that site, or in your course materials.