(a) For a 4.0% interest rate, the first monthly payment that includes more toward principal than toward interest is the 360th payment. The payment includes $1.90 toward interest and $571.00 toward principal.
(b) For a 12.5% interest rate, the first monthly payment that includes more toward principal than toward interest is also the 360th payment. The payment includes $13.20 toward interest and $1,267.51 toward principal.
You may remember seeing home mortgage interest rates fluctuate widely in a period of not too many years. Refer to the following tables, which compare the amortization of a $120,000, 30-year mortgage for rates of 4.0% and 12.5%. Give the first monthly payment that includes more toward principal than toward interest for (a) a 4.0% rate, and (b) a 12.5% rate.
4.0% Interest, Monthly Payment: $572.90
Payment
Number
Interest
Payment
Principal
Payment
Balance of
Principal
Initially
120,000.00
1
400.00
172.90
119,827.10
2
399.42
173.48
119,653.62
3
398.85
174.05
119,479.57
12
393.55
179.35
117,886.76
60
362.49
210.41
108,537.02
152
287.12
285.78
85,851.63
153
286.17
286.73
85,564.90
230
202.43
370.47
60,358.56
231
201.20
371.70
59,986.86
294
114.50
458.40
33,890.53
295
112.97
459.93
33,430.60
296
111.44
461.46
32,969.13
359
3.80
569.10
571.00
360
1.90
571.00
0.00
Totals:
86,243.41
120,000.00
12.5% Interest, Monthly Payment: $1280.71
Payment
Number
Interest
Payment
Principal
Payment
Balance of
Principal
Initially
120,000.00
1
1,250.00
30.71
119,969.29
2
1,249.68
31.03
119,938.26
3
1,249.36
31.35
119,906.91
12
1,246.29
34.42
119,609.63
60
1,224.11
56.60
117,458.11
152
1,133.87
146.84
108,704.57
153
1,32.34
148.37
108,556.20
230
951.19
329.52
90,984.42
231
947.75
332.96
90,651.46
294
641.10
639.61
60,905.68
295
634.43
646.28
60,259.40
296
627.70
653.01
59,606.39
359
26.27
1254.44
1267.51
360
13.20
1267.51
0.00
Totals:
641,055.35
120,000.00
1 answer