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his morning, you borrowed $150,000 to buy a house. The mortgage rate is 7.35 percent. The loan is to be repaid in equal monthly payments over 20 years. The first payment is due one month from today. How much of the second payment applies to the principal balance? (Assume that each month is equal to 1/12 of a year.)

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temdan2001

Answer: 277.61 - option B

Explanation: you borrowed $150000

20-year mortgage at 7.35 percent. Start by dividing 0.0735 by 12 to find that the monthly rate equals 0.0061. Next, add 1 to 0.0036 to get 1.0061. Third, multiply 20 years by 12 payments per year to find that your loan consists of 240 monthly payments. Fourth, raise 1.0061 to the negative 240th power to get 0.2323. Fifth, subtract 0.2323 from 1 to get 0.7676. Sixth, divide 0.0061 by 0.7676 to get 0.007947. Finally, multiply 0.007947 by $150,000 to find your monthly payment will be $1192

Repeat for the second payment by using 11 month instead of 12

Then you will get: 277.61

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