You borrow $320,000 for 30 years with 3% APR. This is an interest only mortgage for...

You borrow $320,000 for 30 years with 3% APR. This is an interest only mortgage for the first five years. At the end of the five-year period, the mortgage will be fully amortized for the remaining years at 4.5% APR compounded monthly.

a. Find your monthly payments for the first five years

b. Find the loan balance at the end of five years after making the 60^th payment.

c. Find the monthly payments for the amortized mortgage for the remaining 25 years

d. Find the total amount of interest paid over the life of this mortgage.

e. If the mortgage was fully amortized over 30 years @ 4.5 % APR, what would be the total interest payments?

f. What conclusion do you draw based on your answers to parts d and e?

Solutions

Expert Solution

From d) and e) we can conclude that opting for a variable rate of interest compared to a fixed rate would provide the borrower with advantage of $ 28,349.88 in interest savings.

Formulae

Formulae as above...

jeff jeffy answered 1 year ago

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