Rob Grier, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 10.5%, 20-year mortgage, payable at $998.38 per month. At the end of the first month, Rob receives a statement from the bank indicating that only $123.38 of principal was paid during the month. At this rate, he calculates that it will take over 67 years to pay off the mortgage. Is he right?

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Bronson

Today, 09:02

Rob Grier, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 10.5%, 20-year mortgage, payable at $998.38 per month. At the end of the first month, Rob receives a statement from the bank indicating that only $123.38 of principal was paid during the month. At this rate, he calculates that it will take over 67 years to pay off the mortgage. Is he right?

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Tianna Fletcher · Answer 1

No

Explanation:

Rob is considering their principal payment will be 123.38 everytime.

It will increase through time while interest payment decrease.

Month Beg Cuota Rate Interest Principal payment Ending

1 100,000 998.38 0.00875 875 123.38 99,877

2 99,877 999.38 0.00875 873.92 125.46 99,751

3 99,751 1000.38 0.00875 872.82 127.56 99,624

4 99,624 1001.38 0.00875 871.77 129.67 99,494

5 99,494 1002.38 0.00875 870.57 131.81 99,362

6 99,362 1003.38 0.00875 869.42 133.96 99,228

The cuota and rate keep at the same level.

But the interest decrease, because each time the principal is lower, giving place to a higher repayment.

The loan will repay at 20 year as state in the mortgage