Like every Canadian couple, Amira and Owen carry quite a lot of debt.

• Three years ago, Amira purchased a Subaru Outback costing $34,750 before sales tax of 15%, with a $5,000 down payment, 7 year term and interest rate of 6%, compounded monthly. Payments are monthly.
• The couple has a line of credit to cover unexpected expenses. The maximum possible withdrawal is $15,000. Terms include a monthly principal repayment of 2% of the balance outstanding, and an interest rate of 7%, compounded monthly, on any outstanding balance.
• The couples mortgage is coming up for renewal. They borrowed $289,750 five years ago at a rate of 2.59%, compounded semi-annually. Their financial institution has offered them a renewal rate of 1.69%, compounded semi-annually, for a new 5-year term. Their original amortization period was 25 years. They would renew their mortgage for the remaining 20 year amortization, but instead of bi-weekly payments, they would opt for monthly payments.
• Amira and Owen pay, on average, $800 towards their credit cards every month, and generally carry a balance of $2,000 from month to month. Combined, their total credit card limit is $10,000.

Part 5 (1 mark mark each)

The couples credit card charges an annual percentage rate (APR) of 18%, compounded daily, and requires a 5% minimum payment.

1. How long would it take them to pay off their $2,000 balance if they shelve their cards, never use them again, and continue with the ($2,000 x 0.05) = $100 minimum monthly payment required now?

1. How much total interest would they have paid?

Calculation of credit card amortization period

Calculation of total interest paid