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10-6 Using the Finance Solver
Example 2 - Mortgage with balloon payment
Suppose you have taken out a 30-year, $150,000 house
mortgage at 6.5% annual interest. You expect to sell the
house in 10 years, repaying the loan in a balloon
payment. Find the size of the balloon payment -- the
value of the mortgage after 10 years of payment.
Solution. The following cash flow diagram illustrates the
case of the mortgage with balloon payment:
• Start the Finance Solver, selecting P/YR = 12 and
End payment option.
• Enter the known TVM variables as shown in the
diagram above. Your input form, for calculating
monthly payments for the 30-yr mortgage, should
look as follows:
• Highlighting the PMT field, press the soft
menu key to obtain a payment of -948.10 (i.e., PMT
= -$948.10)
• To determine the balloon payment or future value (FV)
for the mortgage after 10 years, use N = 120,
highlight the FV field, and press the soft menu
key. The resulting value is FV = -$127,164.19. The
negative value indicates a payment from the
homeowner. Check that the required balloon
payments at the end of 20 years (N=240) and 25
years (N = 300) are -$83,497.92 and
-$48,456.24, respectively.
PV = $150,000
1
2
59
60
l%YR = 6.5
N = 30 x 12 = 360 (for PMT)
N = 10 x 12 = 120 (for balloon payment)
P/YR = 12; End mode
PMT = ?
Balloon payment,
FV = ?