Question
Question 1(6 marks) Tom purchases a property and finances it with a Graduated Payment Mortgage (GPM) loan for 200,000 at j2=7% (2 is compounding frequency)
Question 1(6 marks) Tom purchases a property and finances it with a Graduated Payment Mortgage (GPM) loan for 200,000 at j2=7% (2 is compounding frequency) His monthly payment for the first year will be 1000; the annual growth rate for the payments will be 7% for each of the first five years.
(a) (1 mark) What is the monthly payment on the loan during the 4th year?
(b) (2 marks) What is the OSB on the loan at the end of 2nd year?
(c) (3 marks) Suppose instead of the GPM, he obtains a standard level payment mortgage at the same interest rate amortized over 30 years. Under this scenario, what would be the answers for (a) & (b)? How would your new answers compare to those in (a) & (b)?
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