Question
A borrower obtained a fully amortising loan of $700,000 at 7% p.a. for 25 years. After 5 years, mortgage rates have dropped, so that a
A borrower obtained a fully amortising loan of $700,000 at 7% p.a. for 25 years. After 5 years, mortgage rates have dropped, so that a fully amortising 20-year loan can be obtained at 6.5% p.a. The early repayment (exit cost) and other refinancing costs will be $5,000.
i. What is the current monthly payment and current total outstanding balance after 5 years?(2 Marks)
ii. Assuming an interest-only mortgage payment, what is the mortgage payment in the first month?(1 Mark)
iii. If interest-only mortgage payment is maintained for five years, explain how would this impact the loan balance(2 Marks)
iv. Is refinancing desirable?(3 Marks)
Please provided step-by-step solutions, thank you
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