1. Time Value of Money

You have just begun your first graduate position and would like to purchase a home. Your grandparents are willing to supplement your savings and Kiwi saver to provide the deposit of 20% of the homes price. Home loan interest rates are 5% compounded fortnightly. You have a fortnightly income of $1500. Most financial institutions limit your mortgage expenses to about 40% of your income.

(a) If you take out a 30 year mortgage, what is the price of the home you can buy? (10 marks)

(b) What will your mortgage payment be if interest rates go up to 5.25%? (10 marks)