Planit:Riba-Free Mortgage Exercise Answer Key
You purchased a house seven years ago with a value of RM 200,000. You signed a contract with your bank to repay them a total amount of RM 250,000 over 20 years. You are making monthly, equal payments.
What is the current balance of the mortgage? $___________
Select Present and Future Values from the Calculators drop down on the home page.
- Click on the radio button to indicate Simple Annuity
- Leave the Periodic Payment blank, since this is what we are calculating for.
- Select the Frequency as monthly, since he wants to make monthly payments.
- In the Number of Payments field enter 240: 12 payments/year times 20 years of payments
- In the Interest/year field enter 0%
- The payments are not going to be indexed, since the agreement would then have to be re-drawn, so the Index Payments per Year can be left at 0%
- Set the Future Value to $250,000: the amount that the client needs to pay back.
- Click on the button next to Periodic Payment.
The result should be $1,041.67
- To find the balance of the mortgage, first click the Schedule button.
- Scroll down to Period number 84: 12 months/year multiplied by seven years (this will be the period for the current month).
- Note the number for this period under Ending. This is the amount that your client will have already paid to the bank after the first seven years.
- To find the balance, calculate the total value of the amount owed to the bank – the amount already paid after seven years. ($250,000 - $87,500.28 = 162,499.72)
The balance of the mortgage after ten years would be RM 162,499.72.