COMPOUND INTEREST AND LOANS

John and Isadora Melmoth have taken out a mortgage for a house as they feel it is time to settle

down. The property that they have purchased cost EURO 450,000 and, after paying solicitor and

agency fees, they were able to put down a 20% deposit. They have negotiated a 5% fixed rate

mortgage lasting 35 years with payments made monthly.

(a) How much money have they had to borrow from the bank?

(b) Using the method used by banks and other financial institutions, calculate the monthly compound interest rate (in percent) that will be applied to the mortgage.

(c) Calculate the value of the monthly payments (to the nearest eurocent) needed to pay o the mortgage.

(d) How much money will they repay to the bank?

(e) How much interest will they have paid at the end of their mortgage?

(f) What percentage of the total money repaid by the Melmoths will be interest?