Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Amortization schedule with a balloon payment You want to buy a house that costs $250,000. You have $25,000for a down payment, but your credit is

Amortization schedule with a balloon payment

You want to buy a house that costs $250,000. You have $25,000for a down payment, but your credit is such that mortgage companieswill not lend you the required $225,000. However, the realtorpersuades the seller to take a $225,000 mortgage (called a sellertake-back mortgage) at a rate of 7%, provided the loan is paid offin full in 3 years. You expect to inherit $250,000 in 3 years; butright now all you have is $25,000, and you can afford to makepayments of no more than $22,000 per year given your salary. (Theloan would call for monthly payments, but assume end-of-year annualpayments to simplify things.)

What would the loan balance be at the end of Year 3? Round youranswer to the nearest cent.
$

What would the balloon payment be? Round your answer to thenearest cent.
$

If the loan amortized over 3 years, how large would each annualpayment be? Round your answer to the nearest cent.
$

Could you afford those payments?
-Select-No, the calculated payment is greater than the affordablepayment.Yes, the calculated payment is less than the affordablepayment.No, the affordable payment is greater than the calculatedpayment.Yes, the calculated payment is greater than the affordablepayment.Yes, the affordable payment is less than the calculatedpayment.Item 2

If the loan were amortized over 30 years, what would eachpayment be? Round your answer to the nearest cent.
$

Could you afford those payments?
-Select-Yes, the calculated payment is less than the affordablepayment.No, the calculated payment is greater than the affordablepayment.No, the affordable payment is greater than the calculatedpayment.Yes, the calculated payment is greater than the affordablepayment.No, the affordable payment is less than the calculatedpayment.Item 4

To satisfy the seller, the 30-year mortgage loan would bewritten as a balloon note, which means that at the end of the thirdyear, you would have to make the regular payment plus the remainingbalance on the loan.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

Loan Amortization Schedule with Balloon Payment Loan Details Loan amount 225000 Interest rate 7 Loan ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Document Format ( 2 attachments)

PDF file Icon
664319a64dde5_952323.pdf

180 KBs PDF File

Word file Icon
664319a64dde5_952323.docx

120 KBs Word File

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Financial Management

Authors: Eugene F. Brigham, Joel F. Houston

Concise 6th Edition

324664559, 978-0324664553

More Books

Students also viewed these Finance questions