April buys a $120,000 condo with an 20-year 3.75% interest-only loan. How much will she owe on the condo at the end of five years?
explain what you mean by an "3.75% interest-only loan"
Interest loans on mortgages are usually stated as annual rates, compounded monthly,
since the common time for the payment period is the month.
If I am correct, an interest-only loan requires payments only of the accruing interest. So at the end of any time span, the balance owed is still the original $120K
Better review the topic to make sure this is so.
To calculate the amount April will owe on the condo at the end of five years, we need to consider the interest-only loan terms.
First, let's calculate the annual interest payment.
Interest payment = Loan amount * Interest rate
= $120,000 * 3.75% = $4,500
Since it's an interest-only loan, April will only need to pay the interest amount each year.
Next, let's calculate the total interest paid over five years.
Total interest paid = Interest payment * Number of years
= $4,500 * 5 = $22,500
At the end of five years, April will still owe the full loan amount, as she is only paying the interest on the loan.
Therefore, April will owe $120,000 on the condo at the end of five years.
To find out how much April will owe on the condo at the end of five years, we need to calculate the remaining loan balance after five years.
First, we need to calculate the monthly interest payment and the monthly payment towards the principal (loan amount).
The interest-only loan means that April is only required to pay the interest each month and not the principal. So, the monthly interest payment can be calculated as:
Monthly interest payment = (Loan amount * Interest rate) / 12
In this case, the loan amount is $120,000 and the interest rate is 3.75%. Therefore, the monthly interest payment is:
Monthly interest payment = (120,000 * 0.0375) / 12 = $375
Now, we can calculate the total interest paid over five years by multiplying the monthly interest payment by the total number of months in five years, which is 60:
Total interest paid = Monthly interest payment * Number of months
Total interest paid = $375 * 60 = $22,500
Since April only made interest payments, the principal amount of the loan remains unchanged at $120,000.
Finally, to find out how much April will owe on the condo at the end of five years, we add the total interest paid to the principal amount:
Remaining loan balance = Principal amount + Total interest paid
Remaining loan balance = $120,000 + $22,500 = $142,500
Therefore, April will owe $142,500 on the condo at the end of five years.