Colinda has just purchased her first home for $125,000. She put down a 20 percent down payment of $25,000 and took out a 5 percent mortgage for the rest. Her mortgage payment is $477 per month. How much of her first monthly mortgage payment is amortization?

Accepted Solution

Since there was a down payment, the actual amount borrowed was
Amount borrowed, P=125000-25000=100000
interest, i = 5% (APR) = 0.05/12 per month   (ASSUME compounded monthly)
Monthly payment = $477

To find the amortization portion of the first payment, we need the interest accumulated at the end of the first month (first payment)
= 100000*(0.05/12) = 416.67 (nearest cent)

Therefore amortization portion = $477-416.67 = $60.33

(by the way, if we need to know the amortization period, we have to use the amortization formula and estimate the number of months, n to give a monthly payment of 477 for the given principal.  n can be calculated as 497.265 months, or over 41 years and 5 months).