Question
You are planning to buy a 4 bedroom house in Hamilton that has a price of $1,000,000. One of the local banks has offered you
You are planning to buy a 4 bedroom house in Hamilton that has a price of $1,000,000. One of the local banks has offered you a mortgage at a quoted rate of 5% per year. Interest will be compounded semi-annually. The bank has indicated that they will require 25% down payment. The bank is prepared to lend you the remainder of the purchase price of the house. The amortization period will be 30 years and the term of the mortgage will be 3 years. You are going to make monthly payments on your mortgage. The payments will be made at the end of each period. You have heard from your friend who has just completed AFF210, that by making additional payments on your mortgage during the initial term, you can reduce the remaining balance at the end of the initial term. Your friend has shown you a sample amortization schedule template (below).
Sample Mortgage Schedule
Payment Number
Principal Amount at the Beginning
Interest Expense incurred during the month
Balance Owing Before Payment
Amount of Payment
Principal Component of Payment
Principal Amount at the End of Period
Principal Paid / Amount of Payment
1
2
...
a)Answer the following questions:
i.What is the amount of your periodic payment?
ii.How much will you pay in total on your mortgage over the life of your mortgage?
iii.What is total interest that will be paid over the life of your mortgage?
iv.How much principal will you have paid off during the initial term of your mortgage?
v.How much interest will you have paid off during the initial term of your mortgage?
a)Make a mortgage amortization schedule to illustrate how the mortgage will be repaid over the next 30 years and calculate the following:
i.Use the amortization table to determine the first payment where the interest portion of the payment is less than 50% of the total payment. Identify the payment number where this occurs.
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