Question
Mable is planning to buy a house worth $500,000, has $150,000 in savings for a down-payment and will borrow the remainder via a mortgage. She
Mable is planning to buy a house worth $500,000, has $150,000 in savings for a down-payment and will borrow the remainder via a mortgage. She selects a closed, floating rate mortgage with a 4 year term and a 25 year amortization period. She will make monthly payments and be charged an interest rate of 2.25% p.a., compounded semi-annually.
Part A: What are Mable's monthly payments?
Part B: How much will Mable owe after 1 year has passed if interest rates do not change?
Part C: Assume that i) interest rates remain the same for the next 25 years and ii) Mable's monthly payments remain the same over the next 25 years. How much will Mable have paid in interest over the full 25-year amortization period?
Part D: How much will Mable owe at the end of her term if, after 2 years, interest rates rise to 3.55% p.a., semi-annual compounding?
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