Question

On December 1, the home mortgage balance was $270,000 for the home owned by Betty Martinez. The interest rate for the loan is 6%. Assuming that Betty makes the December monthly mortgage payment of $2700, calculate the following: (a) The amount of interest included in the December payment (round your answer to the nearest cent). (b) The amount of the monthly mortgage payment that will be used to reduce the principal balance. (c) The new balance after Betty makes this monthly mortgage payment.

Answer 1

Answer:

 (a) $1350.00

  (b) $1350.00

  (c) $268,650.00

Step-by-step explanation:

You want the interest, amount to principal, and new balance on a $270,000 loan at 6% after a monthly payment of $2700.

Interest

The monthly interest rate is the annual rate divided by 12:

  r = 0.06/12 = 0.005

The interest due on a balance of 270,000 is ...

  I = Pr

  I = $270,000 · 0.005 = $1350.00

The interest included in the December payment is $1350.00.

Principal

The amount that goes to principal is the amount of the payment left after interest is paid:

  to principal = $2700 -1350 = $1350.00

The reduction of principal will be $1350.00.

Balance

The new balance after the payment is the old balance less the amount used to reduce it:

  $270,000 -1,350 = $268,650

The new balance after the payment is $268,650.

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Additional comment

Payments of $2700 per month will pay off the remaining balance in 11 years and 7 months.