Question

) A $30 000.00 mortgage is amortized by monthly payments over twenty years and is renewable after five years.

a) If the interest rate is 8.5% compounded semi-annually, calculate the outstanding balance at the end of the five-year term.

b) If the mortgage is renewed for a further three-year term at 8% compounded semi-annually, calculate the size of the new monthly payment.

c) Calculate the payout figure at the end of the three-year term.

Answer 1

a

Particulars	Amount
Given APR	8.50%
Given compounding frequency per year	2
Effective annual rate	8.7%
(1+ 0.085/2)^2 -1
Required compounding frequency per year	12
Req period effective rate	0.6961%
(1+ 0.08680625)^1/12 -1
Required APR	8.35327%
0.00696106*12

Particulars	Amount
Loan	30,000.00
× PMT factor	0.00859
Monthly payment	257.57
× PVAF 15 yrs balance term	$102.44
Loan balance	26,385.87

Answer is:

26,385.87

b

Particulars	Amount
Given APR	8.00%
Given compounding frequency per year	2
Effective annual rate	8.2%
(1+ 0.08/2)^2 -1
Required compounding frequency per year	12
Req period effective rate	0.6558%
(1+ 0.0816)^1/12 -1
Required APR	7.86984%
0.0065582*12

Particulars	Amount
Loan	30,000.00
× PMT factor	0.00948
Monthly payment	284.45
× PVAF 12 yrs balance term	92.99485
Loan balance	26,452.00

Payment is 248.45

c

Balance is 26452