Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 33

Solve the following application problems.
HOME LOAN June and Bill Able borrow $122,500 on their home at
for 15 years. Prepare a repayment schedule for the first two payments. (See Example.)
Preparing a Repayment Schedule
The Zinks purchase a house by borrowing $195,000 at 7% for 30 years. Prepare a loan repayment schedule for this loan.

SOLUTION
First find the monthly payment, then use simple interest calculations for the first two months. Be sure to round to the nearest cent at each step.

Every time a payment is made, interest is first subtracted from the payment. As a result, only a small portion of the first payment is applied to reduce the principal.

These and other results are shown in the table. Notice that at first the amount applied to interest is large and the amount applied to reduce principal is small. But every month, the debt goes down, resulting in lower interest the following month, and more of each payment is applied to reduce the principal. It requires 262 months (nearly 22 years) to pay off half of the debt and only 98 months (just over 8 years) to pay off the other half of the loan.