Question

Consider a pool of 800 mortgages with the average size being $500 thousands, which is expected to be paid off in 20 years with fortnightly frequency (26 payments per year). The annual mortgage interest is 4.5%.

1. Estimate the value of fortnightly mortgage payments from the pool .
2. Suppose that the servicing fee is 0.7%, fill in the following table .

Fortnight	Begnning mortgage pool	Mortgage pool payment	Servicing fee	Net interest	Scheduled principal repayment	End of month balance
1
2
3
4
5
6
7
8
9
10

Answer 1

Value of fortnightly mortgage payments from the pool

Fortnightly mortgage pmt.=PV of mortgage/Annuity Factor(for i=4.5%/26=0.1731% & n=20*26=520 fortnights

ie. 400000/((1-1.001731^-520)/0.001731)=

1167.302057

in ' 000s

ie $ 1167302.06

OR we can also use PMT. Function(under Formulas-Financial-Pmt.) in Excel

Fig.' 000s
Fortnight	Begnning mortgage pool	Mortgage pool payment	Servicing fee	Net interest	Scheduled principal repayment	End of month balance
1	2=Prev. 7	3=Annuity	4=Prev.7*0.7%26	5=Prev.7*0.1731%	6=3-5	7=Prev.7-current 6
						400000
1	400000	1167.3	107.69	692.4	474.9	399525.10
2	399525.10	1167.3	107.56	691.58	475.72	399049.38
3	399049.38	1167.3	107.44	690.75	476.55	398572.83
4	398572.83	1167.3	107.31	689.93	477.37	398095.46
5	398095.46	1167.3	107.18	689.10	478.20	397617.27
6	397617.27	1167.3	107.05	688.28	479.02	397138.24
7	397138.24	1167.3	106.92	687.45	479.85	396658.39
8	396658.39	1167.3	106.79	686.62	480.68	396177.70
9	396177.70	1167.3	106.66	685.78	481.52	395696.19
10	395696.19	1167.3	106.53	684.95	482.35	395213.84

Total amt. paid every fortnight will be 1167.30+Servicing fee applicable to that fortnight(ie.0.7%/26 *principal o/s)