Question

Problem 2

You have been very successful in business and it is time to buy the big boat so you can sail the blue seas of the Bedford basin and entertain your friends. You do your research and find the boat you want in Portugal. The price of the boat is $300,000 and it will cost $20,000 to have the boat delivered to Halifax. You go to the bank to borrow the entire amount of the purchase and the bank offers you a loan with a 20 year amortization at 5% with a 5 year term. You plan on making monthly payment on this loan.

1. Calculate your monthly payments.
2. At the end of the 5^th year, you will need to negotiate a new interest rate and a new payment schedule. The loan contract allows you to pay down 10 percent of the original loan amount with no penalty. You have saved the 10 percent so you will pay down the amount you owe to the bank. How much do you still owe the bank?
3. When you go to the bank to re-negotiate your loan with the bank. Interest rates are now 4.75 percent. If you make the payment to reduce the loan balance for the remaining amortization period, what are your new loan payments?
4. If this loan had been to the purchase of a summer home, what changes would be made for your calculations in the previous parts of this question? I think summer home would be if I don't buy the boat and instead buy a home with the loan, what would be different?

           

Answer 1

a)
	$
Purchase cost of boat	3,00,000
Deliver cost	20,000
Entire cost of purchase the boat	3,20,000
Monthly payment based on PV factor @ 5% for 20 year	2,112
b)
Month/Year	Opening Balance	Interest @ .416% monthly	Principal	Closing Balance
(a)	(b)	(c=b*.416%)	(d=2112-c)	(e=b-d)
1	3,20,000	1,333	779	3,19,221
2	3,19,221	1,330	782	3,18,439
3	3,18,439	1,327	785	3,17,654
4	3,17,654	1,323	789	3,16,865
5	3,16,865	1,320	792	3,16,073
6	3,16,073	1,317	795	3,15,278
7	3,15,278	1,313	799	3,14,479
8	3,14,479	1,310	802	3,13,677
9	3,13,677	1,307	805	3,12,872
10	3,12,872	1,303	809	3,12,064
11	3,12,064	1,300	812	3,11,252
12	3,11,252	1,297	815	3,10,436
13	3,10,436	1,293	819	3,09,618
14	3,09,618	1,290	822	3,08,795
15	3,08,795	1,286	826	3,07,970
16	3,07,970	1,283	829	3,07,141
17	3,07,141	1,280	832	3,06,308
18	3,06,308	1,276	836	3,05,472
19	3,05,472	1,273	839	3,04,633
20	3,04,633	1,269	843	3,03,790
21	3,03,790	1,266	846	3,02,944
22	3,02,944	1,262	850	3,02,094
23	3,02,094	1,259	853	3,01,240
24	3,01,240	1,255	857	3,00,383
25	3,00,383	1,251	861	2,99,523
26	2,99,523	1,248	864	2,98,659
27	2,98,659	1,244	868	2,97,791
28	2,97,791	1,241	871	2,96,919
29	2,96,919	1,237	875	2,96,044
30	2,96,044	1,233	879	2,95,166
31	2,95,166	1,230	882	2,94,283
32	2,94,283	1,226	886	2,93,397
33	2,93,397	1,222	890	2,92,508
34	2,92,508	1,219	893	2,91,614
35	2,91,614	1,215	897	2,90,717
36	2,90,717	1,211	901	2,89,816
37	2,89,816	1,207	905	2,88,912
38	2,88,912	1,204	908	2,88,003
39	2,88,003	1,200	912	2,87,091
40	2,87,091	1,196	916	2,86,175
41	2,86,175	1,192	920	2,85,255
42	2,85,255	1,188	924	2,84,332
43	2,84,332	1,185	927	2,83,404
44	2,83,404	1,181	931	2,82,473
45	2,82,473	1,177	935	2,81,538
46	2,81,538	1,173	939	2,80,598
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