Question

You have decided to become a student landlord and plan to buy a house for $920,000. You parents have agreed to supply $200,000 to be used as a down payment, leaving $720,000 to be financed by means of a mortgage. The mortgage broker has quoted 5.25% quoted rate based on a 25-year amortization, which will be compounded semi-annually in accordance with the law.

a) What would be the amount of monthly payments on the mortgage?

b) What would be the principal outstanding after five (5) years?

Answer 1

Given the amount of loan required inorder to buy the house is $7,20,000

Now the rate offered by bank is 5.25%

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 = 1.0525

Hence X = 2.591423%

Now monthly rate will be 2.591423/6 = 0.431904

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

= (7,20,000 * 0.00431904 *(1.004319)³⁰⁰)/((1.004319)³⁰⁰-1)

= 7,20,000 * 0.00431904 * 1.378298

= 4286.106

b) The amortization schedule for first five years is as follows.

Month	Opening Investment	Interest	Monthly installement	Closing balance
1	7,20,000	3,109.71	4286.106	7,18,823.60
2	7,18,823.60	3,104.63	4286.106	7,17,642.12
3	7,17,642.12	3,099.53	4286.106	7,16,455.54
4	7,16,455.54	3,094.40	4286.106	7,15,263.84
5	7,15,263.84	3,089.25	4286.106	7,14,066.99
6	7,14,066.99	3,084.08	4286.106	7,12,864.96
7	7,12,864.96	3,078.89	4286.106	7,11,657.75
8	7,11,657.75	3,073.68	4286.106	7,10,445.32
9	7,10,445.32	3,068.44	4286.106	7,09,227.66
10	7,09,227.66	3,063.18	4286.106	7,08,004.73
11	7,08,004.73	3,057.90	4286.106	7,06,776.53
12	7,06,776.53	3,052.60	4286.106	7,05,543.02
13	7,05,543.02	3,047.27	4286.106	7,04,304.18
14	7,04,304.18	3,041.92	4286.106	7,03,059.99
15	7,03,059.99	3,036.54	4286.106	7,01,810.43
16	7,01,810.43	3,031.15	4286.106	7,00,555.47
17	7,00,555.47	3,025.73	4286.106	6,99,295.09
18	6,99,295.09	3,020.28	4286.106	6,98,029.27
19	6,98,029.27	3,014.82	4286.106	6,96,757.98
20	6,96,757.98	3,009.33	4286.106	6,95,481.20
21	6,95,481.20	3,003.81	4286.106	6,94,198.91
22	6,94,198.91	2,998.27	4286.106	6,92,911.07
23	6,92,911.07	2,992.71	4286.106	6,91,617.68
24	6,91,617.68	2,987.12	4286.106	6,90,318.70
25	6,90,318.70	2,981.51	4286.106	6,89,014.10
26	6,89,014.10	2,975.88	4286.106	6,87,703.88
27	6,87,703.88	2,970.22	4286.106	6,86,387.99
28	6,86,387.99	2,964.54	4286.106	6,85,066.42
29	6,85,066.42	2,958.83	4286.106	6,83,739.15
30	6,83,739.15	2,953.10	4286.106	6,82,406.14
31	6,82,406.14	2,947.34	4286.106	6,81,067.37
32	6,81,067.37	2,941.56	4286.106	6,79,722.82
33	6,79,722.82	2,935.75	4286.106	6,78,372.47
34	6,78,372.47	2,929.92	4286.106	6,77,016.28
35	6,77,016.28	2,924.06	4286.106	6,75,654.23
36	6,75,654.23	2,918.18	4286.106	6,74,286.30
37	6,74,286.30	2,912.27	4286.106	6,72,912.47
38	6,72,912.47	2,906.34	4286.106	6,71,532.70
39	6,71,532.70	2,900.38	4286.106	6,70,146.97
40	6,70,146.97	2,894.39	4286.106	6,68,755.25
41	6,68,755.25	2,888.38	4286.106	6,67,357.53
42	6,67,357.53	2,882.34	4286.106	6,65,953.77
43	6,65,953.77	2,876.28	4286.106	6,64,543.94
44	6,64,543.94	2,870.19	4286.106	6,63,128.03
45	6,63,128.03	2,864.08	4286.106	jeff jeffy Next > < Previous Related Solutions You have decided to become a student landlord and plan to buy a house in “The... You have decided to become a student landlord and plan to buy a house in “The Village” for $920,000. You parents have agreed to supply $200,000 to be used as a down payment, leaving $720,000 to be financed by means of a mortgage. The mortgage broker has quoted 5.25% quoted rate based on a 25-year amortization, which will be compounded semi-annually in accordance with Canadian law. a) What would be the amount of monthly payments on the mortgage? b) What... Suppose that you decided to buy a new house. The house you want to buy costs... Suppose that you decided to buy a new house. The house you want to buy costs $520,000 and the interest rate is 7%. 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