| You need a 35-year, fixed-rate mortgage to buy a new home for $325,000. Your mortgage bank will lend you the money at a 6.20 percent APR for this 420-month loan. However, you can afford monthly payments of only $1,650, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. |
| How large will this balloon payment have to be for you to keep your monthly payments at $1,650? |
We have provided with the information as follow
buy a new home for $325,000.
bank will lend you the money at a 6.20 percent APR for this 420-month loan.
you can afford monthly payments of only $1,650, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.
So first of all we will calculate the Prasent Value of annual Payment of 1650 for 420 Months
Lets do calculation as follow
PVA = $ 1650 x ( 1- (1 /0.00567)420 ) / 0.00567
= 282687.39
Remaining principal
= $325000 – $282687.39
= $42312.61
Balloon payment
= $282687.39 x [1 + (0.062/12)420]
= $2462063.40
