Question

You approach ABC Bank for a loan. They offer a rate of 5.40 percent per annum on a mortgage amount of $750,000 over 22 years, with instalments payable at the end of each month (Hint: the last instalment will pay off the mortgage).

A rival Neobank named Big Loan Ltd offers a rate of 5.10% per annum however with fortnightly instalments, on the same amount with the same term of maturity of 22 years.

a)   Calculate the loan instalment payments under each arrangement?

  

b)   Which arrangement will result in the lower amount of interest being paid over the term of the loan? Show your calculations to support your answer.

c)    What reasons other than interest rate differential might impact your decision to choose one loan provider over an alternative loan provider?

Answer 1

b)

From above it is clear that,the loan from Big loan will result in lower amount of interest paid over the period of loan.

c)

There are other reasons than interest rate differential that can impact the decision to choose one provider. These are liquidity situation of borrower, convenience of payment, concessions on interest, flexibility in repayment terms etc

Formulae

Formulae as above