10. Using the information from the problem below, calculate the amount of the third month's payment that will be applied to the principle (amortization table).

You are thinking about buying a home for $120,000 and can put down $20,000. If the lender charges a fixed rate of 6.5% and you want a 30 year mortgage, what is the monthly payment on the $100,000 loan? How much interest do you pay over the life of the loan?

Answer:

Calculation of Monthly loan payment using Present value of Annuity formula :

Monthly Payment = Loan present value / [{1-(1+r)^(-n)}/r]

Loan Present value = 120000-20000= $100000

r= rate of interest monthly = 6.5% /12 = 0.005416666

n= number of months =30 years *12 = 360

Hence , Monthly Payment = 100000 / [{1-(1+0.005416666)^(-360)}/ 0.005416666]

=100000 / [(1-0.14302476)/ 0.005416666]

= 100000 /158.210833

= $632.07

Total Interest over the life of the loan = Total Amount paid - Loan amount

=(632.07*360) -100000

= 227545.20 -100000

= $127545.20