Question

A borrower obtains a $100,000 home equity loan for 30 years at 6% interest. If the monthly payments of $599.55 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment?

A)$99,900.45
B)$99,425.00
C)$99,500.25
D)$100,000.00

Answer 1

The balance of the principal after the borrower makes the first payment of a $100,000 home equity loan for 30 years at 6% interest and a monthly payment of $599.55 credited first to interest and then to principal will be $99,900.45.

Step-by-step explanation:

To find the balance of the principal after the borrower makes the first payment, we need to calculate how much of the monthly payment goes towards the interest and how much goes towards the principal. The monthly payment is $599.55, and the interest rate is 6% per year. Let's calculate:

First, we calculate the monthly interest rate by dividing the annual interest rate by 12: 6% / 12 = 0.005.

Next, we calculate the interest portion of the monthly payment by multiplying the remaining loan balance by the monthly interest rate: $100,000 * 0.005 = $500.

Finally, we subtract the interest portion from the total monthly payment to find the principal portion: $599.55 - $500 = $99.55.

Therefore, after the borrower makes the first payment, the balance of the principal will be $100,000 - $99.55 = $99,900.45.