Question 2 Mortgages

Consider that you need to finance the purchase of a house. The purchase of the house is $550,000 and you will require 100% financing. The loan term is 30 years and the terms of the contract require monthly end of period payments (including interest and principal). The current variable rate offered by your bank is 6% per annum.

a. What is the monthly mortgage payment?

b. If you are selling the house 5 years after the mortgage start, how much do you still owe the bank?

c. 5 years after the mortgage start you are now earning a bit more in your job so you decide to pay an extra $500 every month into your mortgage. What impact would this have on the remaining terms of your mortgage?

d How much will your monthly payment increase if the interest rate is increased by 50 basis point (or 0.50%) 5 years after the mortgage start?

e. If you can't afford the extra payment, how much longer will you have to pay the mortgage if the bank agrees for you to keep repaying the original monthly payment?