Section 1: Finance

Establish the total cost of your Tiny House

Use 3 loans: BANK A, Bank B, Bank C

- choose your own principal and compound interest rate

List the following:

Principal Amount of the Mortgage,

Length of the Mortgage (Term)

Interest Rate (compound period)

Total Amount Repayable

Total Interest Paid over the Term of the mortgage

Section 2: Finance (cont)

Part B:

You and your future spouse are newly married and are planning to buy a tiny house together. You want to buy a house of around $120,000 ( as an example). You plan to take 90% ( as an example)of this amount as loan from a bank. You need to have 10%( as an example) of the price of the tiny house as deposit before you buy the house. You are thinking of making an investment of $2500 ( as an example) to save the required deposit. You have four options available to save the rest of the required amount:

Option 1: You could invest the amount you already have, in an account that offers a simple interest of 7.0 % per annum calculated annually.

Option 2: You could invest the money in an account offering 6.0 % interest p.a. compounded half yearly.

Option 3: You could invest their money in an account that offers 6.1 % p.a. compounding monthly.

Option 4: You could invest their money in an account that offers 6.65 % p.a. compounding monthly. There is also an account keeping fee of $10 per month.

Use the given information to investigate the quickest way to save the required deposit according to the following instructions.

a) The principal amount is $2500. Write the simple interest or compound interest working out for all the four investment options.

b) Choose the investment option that will help you save the required amount fastest.

Show evidence for your choice using appropriate calculations for all the four options.

Section 3: Finance (cont)

Part C: (5 marks) Finally, after saving the deposit you ended up purchasing a cheaper home for $120,000. ( as an example)

You approached three different banks for the loan and were given the following options by each bank:

You need $108000 ( as an example) ( Imagine no stump duty at this moment ).Assume no payments are made throughout the loan term .One lump sum payment is paid at the end of loan period.

OPTION 1: Bank A will provide a loan $108000 (90% of house price as an example) to be repaid in 30 years, at an interest rate of 4.0 % p.a. compounded weekly.

OPTION 2: Bank B is offering a loan amount of $108000 (90% of house price as an example) to be repaid in 30 years, at an interest rate of 4.0 % p.a. compounded monthly. The bank will also charge a fixed fee of $500 per year at the end of each year, as account keeping fee, which will not affect the loan.

OPTION 3: Bank C is offering a loan amount of $108000 (90% of house price as an example) to be repaid in 30 years, at an interest rate of 3.99 % p.a. compounded monthly. However, only for the first year of the loan the bank is offering a discounted rate of 2.99% p.a. Note that they cannot pay any extra money in the first year.

Choose best option and find

a) total cost of the loan

b) total interest pay