Amortization schedule with a balloon payment You want to buy a house that costs $250,000. You have
Question:
Amortization schedule with a balloon payment
You want to buy a house that costs $250,000. You have $25,000for a down payment, but your credit is such that mortgage companieswill not lend you the required $225,000. However, the realtorpersuades the seller to take a $225,000 mortgage (called a sellertake-back mortgage) at a rate of 7%, provided the loan is paid offin full in 3 years. You expect to inherit $250,000 in 3 years; butright now all you have is $25,000, and you can afford to makepayments of no more than $22,000 per year given your salary. (Theloan would call for monthly payments, but assume end-of-year annualpayments to simplify things.)
What would the loan balance be at the end of Year 3? Round youranswer to the nearest cent.
$
What would the balloon payment be? Round your answer to thenearest cent.
$
If the loan amortized over 3 years, how large would each annualpayment be? Round your answer to the nearest cent.
$
Could you afford those payments?
-Select-No, the calculated payment is greater than the affordablepayment.Yes, the calculated payment is less than the affordablepayment.No, the affordable payment is greater than the calculatedpayment.Yes, the calculated payment is greater than the affordablepayment.Yes, the affordable payment is less than the calculatedpayment.Item 2
If the loan were amortized over 30 years, what would eachpayment be? Round your answer to the nearest cent.
$
Could you afford those payments?
-Select-Yes, the calculated payment is less than the affordablepayment.No, the calculated payment is greater than the affordablepayment.No, the affordable payment is greater than the calculatedpayment.Yes, the calculated payment is greater than the affordablepayment.No, the affordable payment is less than the calculatedpayment.Item 4
To satisfy the seller, the 30-year mortgage loan would bewritten as a balloon note, which means that at the end of the thirdyear, you would have to make the regular payment plus the remainingbalance on the loan.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston