This assignment is meant to test your analytical and quantitative skills as well as your application of time value of money principles to real world scenarios. In your groups of 4 or 5 members, you will be required to look at the impact of taking payment holidays on bank clients with home loans. Research what the actual bank provisions are for Covid relief and how they can affect clients.

Furthermore, you will work on 3 scenarios in which the clients will extend their loan terms and those when they choose to increase their payments (when they resume payments) to remain within the same loan term/period or simply pay the outstanding interest as a lump sumin order to resume normal payments while remaining within the same loan period.

Client A:

Bought a R1.3 million house in July 2017. First mortgage instalment was in August 2017.The loan term was 20 years and the interest based on the risk profile was prime + 2.5%.

Client B:

Bought a R2.8 million house in Feb 2005. First instalment in April 2005. Loan term was also 20 years. Interest charged was prime +1.75%.

Client C:

Bought a R850 000 apartment in October 2001. First instalment in December 2001. Loan term is 30 years. Interest charged was prime +2.75%. However this client opted for a fixed rate throughout the loan term.

Question: How will these 3 clients be affected by taking a payment holiday? For each client determine the following:

i.) How much in total interest (and total payments) they would have paid for the entire loan term if they had not taken a break in payments.

ii.) How much in total interest (total payments) they will pay if they take the payment holiday from i.e. miss payments from March to September 2020. Show how their loan term would change.

iii.) How much in total interest (total payments) they will pay if they take the payment holiday but choose to settle the accrued interest between March and September. How much the accrued interest lump sum payment would be to maintain the original payment for the remaining loan term?

iv.) How much total interest will be paid if they decide to the payment holiday but increase their monthly instalments from October going forward so as to remain within the same loan term? Determine that new payment.

There have been numerous changes in the repo rate over these periods in question so incorporate the interest rate changes in your calculation assuming that mortgage payments change immediately after an announcement by the Monetary Policy Committee MPC of the SARB. Include the functions of the MPC and their motivations for changing the repo rate in your write up. You do not need to go into too much depth but you will need to show an understanding of the mechanism of interest rate changes and what the actions try to address.

To make your calculations easier, plot them in an amortization table on excel with N and the corresponding dates (Month and Year) so you can see when to make the payments zero and where the interest rate changes took place. Your write up should not be more than 1500 words. Please include your recommendations for these clients and attach your spreadsheet with the calculations.