Problem 7

You buy a house of $500,000 today. You put a down payment of 20% and borrow a fixedrate mortgage of $400,000 with monthly payments, annual interest rate of 3.5% and 30 years. After 5 years, market interest rate goes up to 6.5%. How much money will you make in book from the mortgage if you continue to pay the monthly mortgages for the next 25 years and the market interest rate will stay the same as 6.5%?