Investor wants to buy building for $7mill, putting down 30% down and financing the rest with a 30 yr mortage loan(fully amortized with 30 equal payment) at an interest rate of 9%. So amount borrowed is $4.9 mil. At 9% and with 30 level payments, the payments will be $476,948. How is this amount calculated , can this be calcualted by TI calculator.
N = 30 I/Y = 9 PV = 4900000 FV = 0 CPT PMT
this will give PMT=$476,948, but since the loan is fully amortized over 30 equal payments, then as i understand then $476,948*30 should be = 4900000, but its not??
I don’t think you understand the fundamentals behind this very well… Fully amortized just means that the interest payments are included in the repayment, which remains level across the life of the loan. So if you first start paying down the mortgage, you are paying mostly interest and little towards principal, and slowly the amount of principal paid each term will increase relative to the last term. Time Value of Money says that “$476,948*30 should be = 4900000” is incorrect.