Determine outstanding balance of the loan at end of year

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A client is evaluating the terms for a 30-year loan for $300,000 that would enable him to purchase a new home. The bank is quoting a 4.8 percent interest rate on the mortgage and has agreed to set monthly mortgage payment at $1000.00 for the first five years of the loan term. At the end of the fifth year (after 60 monthly payments of $1000.00), the monthly loan payment will be reset so that the new monthly payment will pay off the outstanding loan balance over the remaining 25-year loan term. Assuming the interest rate on the loan is fixed for the entire 30-year loan term, determine:

a. the required monthly payment during the final 25 years of the loan term

b. the outstanding balance of the loan at the end of year five, when the monthly payment on the loan is reset

Reference no: EM131495279

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