Problem:
You need a 25- year, fixed rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this 300-month loan, with interest compounded monthly. However you can only afford monthly payments of $850, so you offer to pay any remaining loan balance at the end of the loan in the form of a single balloon payment.
Required:
Question 1: What will be the amount of the balloon payment if you are to keep your monthly payments at $850? Please provide step by step solution.