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```					House Hunting

exciting, but it is also a big
responsibility.

What are some costs
associated with renting or
Lesson Objective
Compute the allocation of the monthly payment to the principal and
interest and the new principal.
Example 1
Rod and Carey Finn obtained a 30-year,
\$80,000.00 mortgage from State Bank and
Trust. The interest rate is 8 percent. Their
monthly payment is \$587.20.
For the first payment, what is the interest?
What is the payment to principal?
What is the new principal?
Find the interest.
Principal × Rate × Time
\$80,000.00 × 8% × 1/12 = \$533.33
Find the payment to principal.
Monthly Payment – Interest
\$587.20 – \$533.33 = \$53.87
Find the new principal.
Previous Balance – Payment to Principal
\$80,000.00 – \$53.87 = \$79,946.13
Example 2
The amount of principal that you owe decreases
with each payment that you make. Figure 10.3 below
shows the interest and principal paid for payment
numbers 325, 326, and 327 on an original \$80,000
mortgage loan.
For payment number 328, what is the interest?
What is the payment to principal?
What is the new principal?
Figure 10.3
Find the interest.
Principal × Rate × Time
\$17,117.15 × 8% × 1/12 = \$114.11
Find the payment to principal.
Monthly Payment – Interest
\$587.20 – \$114.11 = \$473.09
Find the new principal.
Previous Balance – Payment to Principal
\$17,117.15 – \$473.09 = \$16,644.06
Practice 1
Mortgage loan of \$154,000. Interest rate is 8
percent for 30 years. Monthly payment is
\$1,130.36.
How much of the first monthly payment is for
interest?
How much of the first monthly payment is for
principal?
What is the new principal?
Portion of the first monthly payment to
interest: \$1,026.67
Portion of the first monthly payment to
principal: \$103.69
New principal: \$153,896.31
Practice 2
Mortgage is \$125,000. Interest is 7½ percent
for 20 years. Monthly payment is \$1,007.50.
How much of the first monthly payment is
for interest?
How much of the first monthly payment is
for principal?
What is the new principal?
Portion of the first monthly payment to
interest: \$781.25
Portion of the first monthly payment to
principal: \$226.25
New principal: \$124,773.75

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