On August 1, the home mortgage balance was $247,000 for the home owned by Kevin Brooks. The interest rate for the loan is 7.125 percent. Assuming that Kevin makes the August monthly mortgage payment of $1976, calculate the following: (a) The amount of interest included in the August payment (round your answer to the nearest cent). (b) The amount of the monthly mortgage payment that will be used to reduce the principal balance. (c) The new balance after Kevin makes this monthly mortgage payment. (a) Interest amount: (b) Principal reduction: (c) New balance:
(a) Interest amount:
First, calculate the monthly interest by multiplying the annual interest rate by the remaining mortgage balance:
Monthly interest = (7.125% / 12) * $247,000 = 0.59375% * $247,000 = $1,465.84
(b) Principal reduction:
To find the amount of the monthly mortgage payment that will be used to reduce the principal balance, subtract the interest amount from the total payment:
Principal reduction = $1,976 - $1,465.84 = $510.16
(c) New balance:
Finally, subtract the principal reduction from the previous balance to get the new mortgage balance:
New balance = $247,000 - $510.16 = $246,489.84
Therefore,
(a) The amount of interest included in the August payment is $1,465.84.
(b) The amount of the monthly mortgage payment that will be used to reduce the principal balance is $510.16.
(c) The new balance after Kevin makes this monthly mortgage payment is $246,489.84.