The Monthly Payment pp SECTION

Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 2 of Section Objective Compute: allocation of monthly payment toward principal interest new principal

Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 3 of principal (p. 351) The amount borrowed to finance a mortgage. Key Words to Know

Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 4 of Interest = Principal × Rate × Time Formula 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 5 of Payment to Principal = Monthly Payment – Interest Formula 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 6 of New Principal = Previous Balance – Payment to Principal Formula 3

Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 7 of The Hunt to Find a Home p. 351 Why would most people be interested in the proportion of principal-to- interest for their monthly payments?

Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 8 of Rod and Carey Finn obtained a 30-year, $80, mortgage from State Bank and Trust. The interest rate is 8 percent. Their monthly payment is $ For the first payment, what is the interest? What is the payment to principal? What is the new principal? Example 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 9 of Find the interest. Principal × Rate × Time $80, × 8% × 1/12 = $ Example 1 Answer: Step 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 10 of Find the payment to principal. Monthly Payment – Interest $ – $ = $53.87 Example 1 Answer: Step 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 11 of Find the new principal. Previous Balance – Payment to Principal $80, – $53.87 = $79, Example 1 Answer: Step 3

Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 12 of 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? Example 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 13 of Figure 10.3

Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 14 of Find the interest. Principal × Rate × Time $17, × 8% × 1/12 = $ Example 2 Answer: Step 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 15 of Find the payment to principal. Monthly Payment – Interest $ – $ = $ Example 2 Answer: Step 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 16 of Find the new principal. Previous Balance – Payment to Principal $17, – $ = $16, Example 2 Answer: Step 3

Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 17 of Mortgage loan of $154,000. Interest rate is 8 percent for 30 years. Monthly payment is $1, 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? Practice 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 18 of Portion of the first monthly payment to interest: $1, Portion of the first monthly payment to principal: $ New principal: $153, Practice 1 Answer

Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 19 of Mortgage is $125,000. Interest is 7½ percent for 20 years. Monthly payment is $1, 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? Practice 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 20 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 10-4, Slide 20 of Portion of the first monthly payment to interest: $ Portion of the first monthly payment to principal: $ New principal: $124, Practice 2 Answer

The Monthly Payment 10-4 END OF SECTION