Mortgage payment--balloon payment value?
I know its taboo to ask "homework" questions here but I've struggled with this for an hour and know I'm just doing a small thing wrong. can anyone help me solve this?
1. You would like to buy a house that costs $350,000. You have $50,000 in cash that you can put down on the house, but you need to borrow the rest. The bank is offering you a 30 year mortgage that requires annual payments and has an interest rate of 7% per year. You can afford to pay only $23,450 per year. The bank allows you to pay this amount each year, yet still borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloon payment, that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be?
Would you just calculate the average monthly required payment, find the difference between what they can pay and what is due, and take the future value of 30 cash flows in the future of whatever that value is?
I am not following, the your yearly payment is amortized, so at the end of 30 years you wouldn't have a balloon payment, you would have paid off your loan by then.
Calculate the payment as an interest only mortgage and apply any excess payment available towards paying down principal every month.
(1) Calculate future value of a balloon-payment mortgage (300 000 * 1.07^30) (2) Calculate future value of annuity (23450 / 0.07 * (1.07^30 - 1) although you might want to make this monthly payments, will result in a bit higher future value (3) The difference between the two is your answer.
^ are you sure about that? the second part comes out to 2,283,676.51 and the first part is 50,663.50. after paying just under what they want you to pay each year, you would have to give them a balloon payment of over $2 million?
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