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Monthly payment on loan prior to balloon payment

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Consider a 5-year balloon loan for $400,000. The bank requires a monthly payment equal to that of a 30-year fixed-rate loan with a nominal annual rate of 4%. a. What is the monthly payment (PMT) on the loan prior to the balloon payment? Use the formula PMT = PV[r(1 + r)n]/[(1 + r)n - 1]. b. What is the balance (B) owed by the borrower when the balloon payment is due? Calculate algebraically using B = PV[(1 + r)n - (1 + r)p]/[(1 + r)n - 1] OR using your financial calculator. c. If you decide to refinance the balloon payment, how much will you repay over the life of the new loan?

Reference no: EM131928559

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