you wish to buy a house for $750,000 and the bank has agreed to give you a 15 year loan for 80% of the purchases price, at an annual interest rate of 9% compounded monthly. The loan will pay off the interest and capital such that there is no debt outstanding at the end of the loan.

a) What are your monthly repayments, the first being due at the end of the first month?

b) You believe that immediately after the 24th payment, interest rates will rise to 12% pa.

i. If you decide to pay out the loan at that time to avoid the higher interest rate charges, what will be the payout amount?

ii. If you are unable to afford to pay out the loan at the time, how much longer will it take to pay out the loan if you do not adjust the monthly payments?