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In general, a mortgage loan is repaid monthly over the term of loan using the process of amortization, in which each payment contains two components:
In general, a mortgage loan is repaid monthly over the term of loan using the process of amortization, in which each payment contains two
components: the interest that is owed on the debt outstanding and the portion of the principal that is being repaid.
An amortization table or schedule details the monthly payments, the portions that will be used to pay the accrued interest and the repayment of
the principal, and the debt remaining after each payment is made over the life of the loan.
You will start by constructing an amortization schedule.
Your dream is finally coming true! You've saved and saved and are about to become a homeowner!
After a conversation with your banker, you've agreed to a down payment on your $ home. To keep this problem and your calculations
relatively brief, assume that the bank has offered you a mortgage loan for $ that carries a interest rate, semiannual payments of $
and a year term. Remember, the process is the same when you are preparing for either semiannual payments of nearly $ or monthly
payments of $ for a year conventional mortgage.
Complete the following loan amortization table by entering the correct answers.
Notes:
As all values are denominated in US dollars, you do not have to enter any dollar signs.
Round all interest payments down to the nearest whole dollar.
Rounding creates a situation in which the numbers in the loan's final payment are often unequal. Notice in this problem, the ending
balance for payment is $ Therefore, your final payment would actually be reduced by $ to $ In the real world, to
prevent over paying, you should call the lender to learn the actual amount due.The total of the Interest column indicates the amount of interest expected to be paid over the life of the loan, and the sum of the Payment column
details the total paid $ to purchase your $ home.
This is an amortized loan, because its payments contain:
Only the principal that must be repaid
Both interest and principal
Only accrued interest
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