MORTGAGE CALCULATION $-$ PRACTICE QUESTIONS

Kunal is shopping for a mortgage loan of $$280,000$ with a five$-$year term. These are $3$ loan options:

a$)$ A bank at a nominal rate of $12\%$ p$.$a$.$ compounded semi$-$annually

b$)$ A credit union at $11\mathrm{.}8\%$ p$.$a$.$ compounded monthly

c$)$ A loan company with an effective rate of $12\mathrm{.}2\%$ per annum

If all other terms are identical which is the lowest cost loan?

Four years ago, Brij borrowed $$420,000$ in a first mortgage loan to acquire his house. He paid a $10\%$ per annum interest rate, compounded half$-$yearly, on the loan which had a $4-$year term. The contract called for level monthly payments sufficient to amortize the loan over a $25-$year period.

a$)$ What are Johnson's current monthly payments?

b$)$ What is the outstanding balance at the end of the term?

c$)$ At the end of the term, the lender will renew the loan for the remining amortization at $j2=7\%.$ If he accepts this offer, what will his new monthly payments be$?($Hint: Think carefully about $N).$

To motivate the buyer, Vivek agrees to provide a vendor$-$takeback loan to Donald for the purchaser of his home. The sale price is negotiated to be $$6000,000,$ with $$150,000$ to be pai as a down payment. The rest is provided in a monthly interest$-$only loan for $4$ years at an interest rate of $j2=9\%.$

a$)$ What is the size of the monthly payments?

b$)$ Vivek wants to get cash out of the sale immediately, so he arranges to sell the mortgage loan to a third$-$party investor, who demands a rate of return of $14\%$ compounded semi$-$annually. How much will Vivek receive in total for the sale of his house?