Question
Pinky, a lab scientist from Paalutin du Monde Ltd., has just arranged a variable rate mortgage for $200,000 with monthly payments, a 3-year term, and
Pinky, a lab scientist from Paalutin du Monde Ltd., has just arranged a variable rate mortgage for $200,000 with monthly payments, a 3-year term, and a 20-year amortization period. Round the monthly payments up to the next higher dollar.
The contract provides that a change in interest rates will first cause a change in the amortization period remaining and keep payments constant. However, if the change in interest rate causes the amortization to exceed 25 years, then payments must be increased. Once a 25-year amortization is reached, payments must be adjusted to fully amortize the outstanding balance over a maximum of 25 years. Conversely payments may never be less than those in the first year. In years one, two, and three the mortgage contract rate is as follows:
Year Mortgage Rate
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1 Select a currently applicable mortgage rate
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2 Year 1 rate + 0.5%
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3 Year 1 rate -1%
Based upon the above data, complete the following table: (12 marks)
Payments Amortization Year 2 ? ? Year 3 ? ?
OSB OSB24 OSB36
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