Concept explainers
DISCOVER: Amortizing a Mortgage When they bought their house, John and Mary took out a $90,000 mortgage at 9% interest, repayable monthly over 30 years. Their payment is $724.17 per month (check this, using the formula in the text). The bank gave them an amortization schedule, which is a table showing how much of each payment is interest, how much goes toward the principal, and the remaining principal after each payment. The table below shows the first few entries in the amortization schedule.
After 10 years they have made 120 payments and are wondering how much they still owe, but they have lost the amortization schedule.
- (a) How much do John and Mary still owe on their mortgage? [Hint: The remaining balance is the present value of the 240 remaining payments.]
- (b) How much of their next payment is interest, and how much goes toward the principal? [Hint: Since 9% ÷ 12 = 0.75%, they must pay 0.75% of the remaining principal in interest each month.]
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Chapter 12 Solutions
Bundle: College Algebra, 7th + WebAssign Printed Access Card for Stewart/Redlin/Watson's College Algebra, 7th Edition, Single-Term
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