Question
2. Suppose you have decided to buy a house. The mortgage is a 30-year mortgage with an interest rate of 7%, compounded monthly. You borrow
2. Suppose you have decided to buy a house. The mortgage is a 30-year mortgage with an interest rate of 7%, compounded monthly. You borrow a total of $250,000. Given this, by the time you pay off the loan, how much in total (interest + principal) would the house cost you? (20 pts)
3. How, reconsider the previous problem. Suppose you pay the mortgage according to those specifications (7% APR, monthly) for the first 10 years, but then you refinance because you can get a much better rate of 4%. At the time of refinance, you still owe $214,531, and you will refinance with a 20-year loan (the remaining life). Given this hybrid loan situation (7% for 10 years, 4% for 20 years), how much would the house cost you in total after it was all paid off in 30 years? For simplicity, you may ignore any fees that would accompany the refinance. (20 pts)
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