On January 1, 2016, you take out a mortgage loan in the amount of $1,000,000 to buy a piece of development property. Interest will accrue on your loan at 4.5%, fixed. Monthly payments of principal and interest will be required on the first of each month, beginning February 1, 2016. Your monthly payments will be amortized over a 25-year period (meaning if you kept making the same monthly payment, you would repay the loan in full after 25 years). However, the loan will “balloon” after five years (meaning you will make the regular monthly payments described in the preceding sentence for four years and 11 months, and the remaining loan balance must be repaid in full on January 1, 2021).
a. How much is the regular monthly principal and interest? b. How much will the “balloon” payment be?