Question
A lender requires that monthly mortgage payments be no more than 25% of your gross monthly income with a maximum amortization of 30 years. If
A lender requires that monthly mortgage payments be no more than 25% of your gross monthly income with a maximum amortization of 30 years. If you make 20% downpayment, the house cost is $350,000 and the interest rate is 4.95% compounded monthly
a)The mortgage term is 5 years. What would the balance on principle be at the end of the term if payment schedule is followed exactly? What is the total interest paid in this case throughout the amortization period? (assume interest rate stayed the same).
b)c) The mortgage is closed mortgage with following prepayment privileges:
- Once each calendar year, on any regular payment date, on written notice, a borrower can prepay on account a principal sum of not more than 10% of the original borrowed amount, without notice or charge. If this privilege is not exercised in a certain year, it cannot be carried forward to the following years.; - Once each calendar year, on any regular payment date, on written notice, a borrower, without charge, can increase the amount of the regular installment not to exceed 100% of the installment set out in the mortgage document.
How fast can the mortgage be paid off if both prepayment privileges were used? What is the total interest amount payment in this case?
c)If the interest rate changed to 5.3% compounded monthly after the initial term is finished and stayed the same till the end of the amortization period, what will be the new regular monthly payment amounts? If 10% prepayment option is used for the years 5, 6 and 8, how will it affect the total payment time and total interest on this mortgage?
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