Chapter 15, Problem 1ECP

To determine

Principal loan, Payment per $1000 and Monthly mortgage payment for 25years. If, selling price of home is $140,000, down payment is $10,000, at 3.5% interest rate.

Answer to Problem 1ECP

Monthly mortgage payment is $\underset{\_}{\$651.30}$.

Payment per $1000 is $\underset{\_}{\$5.01}$.

Principal loan is. $\underset{\_}{\$130,000}$.

Explanation of Solution

Formula used:

Amount of mortgage is calculated as, $\text{Amount of mortgage}=\text{Total cost}-\text{Down payment}$.

Monthly payment is calculated as, $\text{Monthly payment}=\frac{\text{Amount of mortgage}}{1,000}\times \text{Table rate}$.

Calculation:

Given that, Total cost is $140,000 and down payment is $10,000.

Substitute, $\text{Total cost}=\text{\$140,000}$ and $\text{Down payment}=\text{\$10,000}$ in first formula.

$\begin{array}{c}\text{Amount of mortgage}=\text{Total cost}-\text{Down payment}\\ =140,000-10,000\\ =130,000\end{array}$

Hence, Principal loan is $\underset{\_}{\$130,000}$.

Use Table 15.1 and obtain the payment per $1000 for Interest rate is 3.5% and time period is 25 years as $5.01.

Hence, Payment per $1000 is $\underset{\_}{\$5.01}$.

Substitute, $\text{Amount of mortgage}=\text{\$130,000}$ and $\text{Table rate}=5.01$ in second formula.

$\begin{array}{c}\text{Monthly payment}=\frac{\text{Amount of mortgage}}{1,000}\times \text{Table rate}\\ =\frac{\text{130,000}}{1,000}\times 5.01\\ =130\times 5.01\\ =651.30\end{array}$

Hence, Monthly mortgage payment is $\underset{\_}{\$651.30}$.