Question

Suppose that 6 months from now, the COVID crisis has caused real estate prices to fall 20% and you are confident that they will bounce back. You have decided to buy a condo on Four Winds Drive, a short walk from the new subway stop at Keele and Finch. You plan to live there with a friend while you finish off your BBA and then commute to downtown where you expect to work after graduation. The condo will cost $400,000 and your parents have provided you the down payment money of $100,000. And the bank is quoting 2.50% quoted rate based on a 25-year amortization, which will be compounded semi-annually in accordance with Canadian law.

Required:

1. What would be the amount of monthly payments on the mortgage?
2. What would be the principal outstanding after five (5) years?

Answer both parts of the question in the text box below. Round your final answer to 2 decimal points

Answer 1

a)Given the amount of loan required inorder to buy the house is $3,00,000

Now the rate offered by bank is 2.5%

Given that this rate is compounded semi-annually

Hence let us calculate the monthly rate

Let X bet the six month rate , Now

(1+X)² = 1.025

Hence X = 1.012423

Now monthly rate will be 1.012423/6 = 0.168737

The formula for calculating the monthly equalised installments is.

[P x R x (1+R)^N]/[(1+R)^N-1], where P stands for the loan amount or principal, R is the interest rate per month.

Hence the equalised monthly installment the amount is

= (3,00,000 * 0.00168737 *(1.00168737)³⁰⁰)/((1.00168737)³⁰⁰-1)

= 3,00,000 * 0.00168737 * 2.519096

= 1275.195

Hence the monthly payment amount is $1275.19

b) Now the loan amortization schedule can be shown as below.

Month	Opening Investment	Interest	Monthly installement	Closing balance
1	3,00,000	506.21	1275.195	2,99,231.02
2	2,99,231.02	504.91	1275.195	2,98,460.74
3	2,98,460.74	503.61	1275.195	2,97,689.15
4	2,97,689.15	502.31	1275.195	2,96,916.27
5	2,96,916.27	501.01	1275.195	2,96,142.08
6	2,96,142.08	499.70	1275.195	2,95,366.59
7	2,95,366.59	498.39	1275.195	2,94,589.79
8	2,94,589.79	497.08	1275.195	2,93,811.68
9	2,93,811.68	495.77	1275.195	2,93,032.25
10	2,93,032.25	494.45	1275.195	2,92,251.51
11	2,92,251.51	493.14	1275.195	2,91,469.45
12	2,91,469.45	491.82	1275.195	2,90,686.07
13	2,90,686.07	490.50	1275.195	2,89,901.37
14	2,89,901.37	489.17	1275.195	2,89,115.35
15	2,89,115.35	487.84	1275.195	2,88,328.00
16	2,88,328.00	486.52	1275.195	2,87,539.32
17	2,87,539.32	485.19	1275.195	2,86,749.31
18	2,86,749.31	483.85	1275.195	2,85,957.97
19	2,85,957.97	482.52	1275.195	2,85,165.29
20	2,85,165.29	481.18	1275.195	2,84,371.28
21	2,84,371.28	479.84	1275.195	2,83,575.92
22	2,83,575.92	478.50	1275.195	2,82,779.23
23	2,82,779.23	477.15	1275.195	2,81,981.18
24	2,81,981.18	475.81	1275.195	2,81,181.80
25	2,81,181.80	474.46	1275.195	2,80,381.06
26	2,80,381.06	473.11	1275.195	2,79,578.97
27	2,79,578.97	471.75	1275.195	2,78,775.53
28	2,78,775.53	470.40	1275.195	2,77,970.73
29	2,77,970.73	469.04	1275.195	2,77,164.58
30	2,77,164.58	467.68	1275.195	2,76,357.06
31	2,76,357.06	466.32	1275.195	2,75,548.18
32	2,75,548.18	464.95	1275.195	2,74,737.94
33	2,74,737.94	463.58	1275.195	2,73,926.33
34	2,73,926.33	462.22	1275.195	2,73,113.35
35	2,73,113.35	460.84	1275.195	2,72,299.00
36	2,72,299.00	459.47	1275.195	2,71,483.27
37	2,71,483.27	458.09	1275.195	2,70,666.17
38	2,70,666.17	456.71	1275.195	2,69,847.69
39	2,69,847.69	455.33	1275.195	2,69,027.83
40	2,69,027.83	453.95	1275.195	2,68,206.59
41	2,68,206.59	452.56	1275.195	2,67,383.95
42	2,67,383.95	451.18	1275.195	2,66,559.94
43	2,66,559.94	449.79	1275.195	2,65,734.53
44	2,65,734.53	448.39	1275.195	2,64,907.72
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