A bank presents the following mortgage rate information:

Term APR 5 year 4.30% 6 year 5.15% 7 year 5.30% 10 year 5.70%

Mortgage rates are compounded semi-annually. Assume that the bank calculates monthly payments using 20-year amortization regardless of the term chosen by the customer. The term of the mortgage is simply the length of the period during which the interest rate is fixed.

Adam and Jackie want to buy a house for $400,000. They will use $100,000 of their savings as a down payment and they are approved by the bank to borrow the rest. Assume that Adam and Jackie chose the 7-year term mortgage.

a) What is the monthly payment over the 7-year term of the mortgage?

b) What will be the outstanding principal balance at the end of the mortgage term of 7 years?

c) How much do they still owe 2 years after they took out this mortgage (i.e., immediately after they made the 24th monthly payment)?

d) What is the principal portion of the 25th mortgage payment?

e) What would be the bi-weekly payment if they switched to bi-weekly payments right after they made their 24th monthly payment? Assume there is no penalty for switching and that the effective interest rate remains the same. Assume also that they would make bi-weekly payments for the remainder of the term and that a year has exactly 52 weeks.