You have just applied, and have been approved for a $58,000 mortgage. The rate quoted to you by the lender is 6.1% for a 30 year fixed mortgage. Determine how much of your third monthÍs payment goes towards the principal.

a.

$56.65

c.

$57.22

b.

$56.93

Here, PV = 58,000, monthly rate = 0.061/12 = 61/12000, n = 30 x 12 = 360 months.

PV = P (1 - (1 + r) ^-n) / r; where P is the periodic payment.

P = PV (r) / (1 - (1 + r) ^-n) = (58000 x 61/12000) / (1 - (1 + 61/12000) ^-360) = (1769/6) / (1 - 0.1612) = 294.8/0.8388 = 351.48

Therefore, the monthly payment is $351.48

For the first month. Interest due = 58000 (61/12000) = $294.83

Amount that goes towards the principal = $351.48 - $294.83 = $56.65

Outstanding principal = $58000 - $56.65 = $57,943.35

For the second month. Interest due = $57,943.35 (61/12000) = $294.55

Amount that goes towards the principal = $351.48 - $294.55 = $56.93

Outstanding principal = $57,943.35 - $56.93 = $57,886.42

For the third month. Interest due = $57,886.42 (61/12,000) = $294.26

Amount that goes towards the principal = $351.48 - $294.26 = $57.22

Therefore, the required amount is $57.22