Question

Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.16% based on monthly compounding. With this mortgage your monthly payments would be $2,032 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the monthly payment of $2,032 every month, you can make half the payment every two weeks (so that you will make 52/2=26 payments per year). With this plan, how long will it take to pay off the mortgage if the EAR of the loan is unchanged? Note: Make sure to round all intermediate calculations to at least 8 decimal places.

Answer 1

Calculating Loan Amount,

Using TVM Calculation,

PV = [FV = 0, PMT = 2,032, N = 360, I = 0.0516/12]

PV = $371,723.75

EAR = (1 + 0.0516/12)¹² - 1 = 5.284%

APR(bi-weekly) = 26[(1.05284)^1/26 - 1] = 5.154%

Calculating Time Period of Repayment,

Using TVM Calculation,

N = [PV = 371,723.75, PMT = 1,016, FV = 0, I = 0.05154/26]

N = 652.39

Time Period = 25.10 years