My Math Forum Financial Maths Problem

 Economics Economics Forum - Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance

 May 2nd, 2014, 03:37 PM #1 Newbie   Joined: Feb 2013 Posts: 16 Thanks: 0 Financial Maths Problem Hi, I'm having difficulty with this problem, could someone please help me out using a geometric series? "A person has a mortgage with an outstanding balance of €300,000 over a remaining period of 25 years at 5% APR. They will pay off the loan at monthly instalments at the beginning of each month. However, the person runs into financial difficulties and reaches an agreement with the bank: the bank agrees to allow the person to pay €300 off the loan per month plus the monthly interest, while extending the period of the mortgage. How many extra payments will the person have to pay now as opposed to when they were not in financial difficulty?" Thanks
 May 2nd, 2014, 07:29 PM #2 Math Team   Joined: Dec 2013 From: Colombia Posts: 7,656 Thanks: 2634 Math Focus: Mainly analysis and algebra Do you know what your monthly interest rate is?
May 2nd, 2014, 09:08 PM   #3
Math Team

Joined: Oct 2011

Posts: 14,413
Thanks: 1024

Quote:
 Originally Posted by Marko1011 A person has a mortgage with an outstanding balance of €300,000 over a remaining period of 25 years at 5% APR. They will pay off the loan at monthly instalments at the beginning of each month. However, the person runs into financial difficulties and reaches an agreement with the bank: the bank agrees to allow the person to pay €300 off the loan per month plus the monthly interest, while extending the period of the mortgage. How many extra payments will the person have to pay now as opposed to when they were not in financial difficulty?"
As Archie asked... is the 5% APR compounding annually,
or is it (1 + .05/12)^12 meaning monthly compounding?

And WHEN (how many months left) will the new arrangement start?

Do you realise that IF this starts when 300,000 is still owing, then a
principal payment of 300 per month means 300000/300 = 1000 months?!

 May 3rd, 2014, 01:28 AM #4 Senior Member   Joined: Apr 2014 From: UK Posts: 918 Thanks: 331 Well, the answer to this is simple. Originally it was supposed to take 25 years, 300 payments, now it's going to take 1000 payments. so that's 700 extra payments. Edit: yeah, I made some assumptions Last edited by weirddave; May 3rd, 2014 at 01:55 AM.
 May 4th, 2014, 04:20 AM #5 Newbie   Joined: Feb 2013 Posts: 16 Thanks: 0 How much interest in total would be paid after 1000 months?
 May 4th, 2014, 07:19 AM #6 Senior Member   Joined: Apr 2014 From: UK Posts: 918 Thanks: 331 £943,563 That's a lot of interest!
 May 4th, 2014, 10:02 AM #7 Newbie   Joined: Feb 2013 Posts: 16 Thanks: 0 How did you calculate that?
 May 5th, 2014, 03:36 AM #8 Senior Member   Joined: Apr 2014 From: UK Posts: 918 Thanks: 331 I cheated and used an online calculator
 May 5th, 2014, 08:19 AM #9 Math Team   Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,413 Thanks: 1024 That's not correct, WDave; total interest is 625,625 1st month: 300000 * .05/12 = 1250.00 2nd month: 299700 * .05/12 = 1248.75 ... 1000th month: 300 * .05/12 = 1.25 In other words, starts at 1250.00 and gradually reduces by 1.25 each month... In other words, an easy arithmeticker: 500(1.25 + 1250.00) = 625625 Last edited by Denis; May 5th, 2014 at 08:36 AM.
 May 5th, 2014, 11:22 AM #10 Newbie   Joined: Feb 2013 Posts: 16 Thanks: 0 But the APR is 5%, so the equivalent monthly rate is ((1.05)^(1/12) - 1)(100), not .05/12

 Tags financial, maths, problem

### geometric series mortgage payments

Click on a term to search for related topics.
 Thread Tools Display Modes Linear Mode

 Similar Threads Thread Thread Starter Forum Replies Last Post tykoh New Users 5 March 21st, 2013 12:29 PM bas Number Theory 3 March 22nd, 2011 10:26 AM scotiwi Economics 5 July 29th, 2009 11:08 PM raidenciv Applied Math 4 September 21st, 2008 05:47 PM tykoh Economics 0 December 31st, 1969 04:00 PM

 Contact - Home - Forums - Cryptocurrency Forum - Top