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Problem 7-16

This extended problem covers many of the features of a mortgage. You purchase a town house for $300,000. Since you are able to make a down payment of 10 percent ($30,000), you are able to obtain a $270,000 mortgage loan for 20 years at a 6 percent annual rate of interest. Use Appendix D to answer the questions. Round your answers to the nearest dollar.

What are the annual payments that cover the interest and principal repayment? $

How much of the first payment goes to cover the interest? $

How much of the loan is paid off during the first year? $

What is the interest payment during the second year? $

What is the remaining balance after the second year? $

Why did the interest payment change during the second year? The annual -Select-increase or decrease in the amount owed -Select-increases or decreases each subsequent interest payment.