Answer:
$224,149
Explanation:
A mortgage is a long-term loan for the purpose of financing a house property acquisition. It is usually secured on the property to be financed .
The loan repayment is structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan and the accrued interest. This is called amortization.
The amount that will paid as interest per period reduces gradually as more and more portion of the paid balance is paid down while the portion of principal paid increases with further payments.
We the help of the table below, I will illustrate better
Period Bal@ Begin Interest Installment Principal paid Bal @ End
a b c d e=d-c f=a-e
1 225,000 797 1,245 448 224,552
2 224,599 795 1,245 450 224,149
This method of loan repayment is called amortization on reducing balance.
Monthly interest
The monthly interest = Principal balance at the begin × interest rate per month
In period 1, interest = 225,000 × 4.25%/12= 797
Principal paid
Interest must be paid before principal, so principal paid in year 1
= Installment - Interest
= 1245- 797 = 448
Loan balance at the end
The balance of principal at the end of year 1
= Balance at the begin of year 1 - Principal paid in year 1
=225,000 -448= 224,552.
The same process is repeated for year 2. Doing we have a figure of
224,149 as the loan balance after the second repayment
