Question

You need a 30-year, fixed-rate mortgage to buy a new home for $320,000. Your mortgage bank will lend you the money at a 6.15 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,600, 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 $1,600? Please show and explain all work.

Answer 1

Answer:

$362,353

Explanation:

In order to answer this question I prepared an amortization schedule to determine the remaining principal balance at the end of the 30th year.

The problem with this loan is that the interests charged for the first month only are $1,640. This means that your monthly payment will not even cover the interest expense which means that the principal will grow month after month. After 360 months, your loan balance will increase from $320,000 to $362,353.