You need a 25-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this monthly repayment loan, with interest compounded monthly.

1. a) What is the monthly payment under this contract? (3 marks)

2. b) However, you can only afford monthly payments of $850. So you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. What will be the amount of the balloon payment if you are to keep your monthly payments at $850?

   (3 marks)