ACTIVITY: TIME VALUE OF MONEY MORTGAGE 1

Kyle and Julia are considering whether or not to buy a particular property valued at $1,000,000. They have $300,000 of their own funds to commit towards the purchase and they expect to incur an additional $60,000 in fees and stamp duty on the purchase itself. They are able to borrow at an interest rate of 6.6% per annum with interest compounded monthly.

Loan repayments would be monthly with the first payment due at the end of the first month after purchasing the property. The term of the home loan is 30 years. They both work full-time earning a combined after-tax salary of $14,500 per month

Question 3: After 1 year, the bank informs Kyle and Julia that $751665.18

is still owing on their loan. How much in totalhave Kyle and Julia paid in mortgage payments during the first year?

Question 4: How much of the amount repaid in the first year has gone towards reducing the principal amount borrowed?

Question 5: How much interest have Kyle and Julia paid in year 1?

Question 6:If the bank now increases interest rates from 6.60% to 7.80%, what will Kyle and Julia's new monthly mortgage repayments be?

Question 7: How will this new monthly mortgage repayment affect their loan affordability ratio?That is, will they befacing mortgage stress?

Loan affordability ratio: