Jan sold her house and received a $45,000 mortgage with a 6% interest rate paid in semiannual installments. The document asks several questions about calculating interest on Jan's mortgage payments over the first year. It asks how much of each payment goes to interest versus principal, how much interest Jan must report on her taxes, and why the amount of reported interest changes each year even if payments remain constant.
Jan sold her house on December 31 and took a $45-000 mortgage as part.pdf
1. Jan sold her house on December 31 and took a $45 , 000 mortgage as part of the payment. The
10 -year mortgage has a 6% nominal interest rate, but for semiannual payments beginning next
June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest
that was included in the two payments she received during the year. a. What is the dollar amount
of each payment Jan receives? Round your answer to the nearest cent. $ b. How much interest
was included in the first payment? Round your answer to the nearest cent. $ How much
repayment of principal was included? Do not round intermediate calculations. Round your
answer to the nearest cent. $ How do these values change for the second payment? I. The portion
of the payment that is applied to interest declines, while the portion of the payment that is
applied to principal increases. II. The portion of the payment that is applied to interest increases,
while the portion of the payment that is applied to principal decreases. II. The portion of the
payment that is applied to interest and the portion of the payment that is applied to principal
remains the same throughout the life of the loan. IV. The portion of the payment that is applied
to interest declines, while the portion of the payment that is applied to principal also declines. V.
The portion of the payment that is applied to interest increases, while the portion of the payment
that is applied to principal also increases. c. How much interest must Jan report on Schedule B
for the first year? Do not round intermediate calculations. Round your answer to the nearest cent.
$ Will her interest income be the same next year? d. If the payments are constant, why does the
amount of interest income change over time? I. As the loan is amortized (paid off), the beginning
balance, hence the interest charge, increases and the repayment of principal increases. II. As the
loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the
repayment of principal increases. II. As the loan is amortized (paid off), the beginning balance,
hence the interest charge, declines and the repayment of principal declines. IV. As the loan is
amortized (paid off), the beginning balance, hence the interest charge, increases and the
repayment of principal declines. V. As the loan is amortized (paid off), the beginning balance
declines, but the interest charge and the repayment of principal remain the same.
