You need a 35-year, fixed-rate mortgage to buy a new home for $260,000.
Calculating Balloon Payment for Mortgage Loan
Answer:
$345,050
Explanation:
An annual percentage rate (APR) is the annual rate that is paid on amount borrowed or received from an investment. It is usually stated as a percentage which indicates the annual cost of funds over the term of a loan.
From the question we have:
Mortgage loan amount = $260,000
Monthly repayment amount affordable = $1,000
ARR = 5.55%
Monthly ARR = 5.55% ÷ 12 = 0.4625%
Mortgage loan tenure in years = 35
Mortgage Loan tenure in months = 35 × 12 = 420
ARR amount payable monthly = Mortgage Loan × Monthly ARR
= $260,000 × 0.4625%
= $1,202.50
Total ARR amount payable = ARR amount payable monthly × Mortgage Loan tenure in months
Total ARR amount payable = $1,202.50 × 420
= $505,050.00
Total mortgage loan to repay after 35 years = Mortgage loan amount + Total ARR amount payable
Total mortgage loan to repay after 420 months = $260,000 + $505,050
= $765,050
Total repayment amount affordable = Monthly repayment amount affordable × Mortgage Loan tenure in months
Total repayment amount affordable = $1,000 × 420
= $420,000
Balloon payment after 420 months = Total mortgage loan to repay after 420 months - Total repayment amount affordable
Balloon payment after 420 months = $765,050 - $420,000
= $345,050
Therefore, the balloon payment have to be as large as $345,050 to keep monthly payments at $1,000.
You need a 35-year, fixed-rate mortgage to buy a new home for $260,000. Your mortgage bank will lend you the money at an APR of 5.55 percent for this 420-month loan. However, you can afford monthly payments of only $1000. 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 $1,000? $345,050