Question

5% annual interest rate for 30 years. This results in a monthly payment of $1100.48. If only the minimum payment is made in month one, how much of the first payment goes toward reducing her balance?First, let's find the amount of interest she paid in month 1.Then, find the amount toward reducing the balance. Round to the nearest cent.

Answer 1

Given: Beth and Bryce sign on a $205,000 mortgage at a 5% annual interest rate for 30 years. This results in a monthly payment of $1100.48.

Required: To find the amount of interest she paid in month 1 and the amount toward reducing the balance.

Explanation: The monthly payment gets divided into two parts- One goes into the loan repayment and the other for the loan's interest.

The interest payment is based on the interest rate, which is 5%.

The monthly interest is:

$\begin{gathered} I=205000\times5\%\times\frac{1}{12} \\ I=\text{\ }854.17 \end{gathered}$

The amount that goes towards reducing her balance is:

$\begin{gathered} =\text{ Monthly Payment-Interest Payment} \\ =1100.48-854.17 \\ =\text{\ }246.31 \end{gathered}$

Final Answer: Interest in month 1 = $854.17

Their balance is reduced by $246.31