Question

Gregory has recently signed a contract to purchase an investment property. The details of the contract are listed below:

• The agreed purchase price was $200000
• Gregory will make a cash deposit of 20% of the purchase price immediately using money from his savings
• The other upfront costs total $3500, also paid immediately using money from his savings

He will fund the remainder of the balance (the remaining 80% of the purchase price) using a mortgage from his local bank. The details for the mortgage are as follows:

• The bank charges interest on such investment loans at 3.5% p.a effective
• Gregory is required to make level end-of-period repayments over the next 25 years
• At the start of the loan (today), Gregory needs to choose between making fortnightly or monthly repayments. Whichever choice he makes, he is locked into this choice for the remainder of the term of the loan.

Gregory ends up choosing the monthly repayment option.

e) Calculate the total amount of interest Gregory pays in the first year.

Answer 1

First of let us find out amount Gregory takes from the ban:

Initila purchase cost=$200000

Loan taken from bank =80% of intial purchase cost:=0.80*200,000=$160,000

Now the rate of interest=3.5% annual

tenure of Loan=25 years

Payments done on monthly basis

therefore we need to find out interest in 1st year as per the question:

I am attaching the exce sheet for you reference please feel free to ask any doubts if you do not understand:

Note; I have taken monthly interest as=3.5%/12=0.291667% for calculation

And opening balance in months starting, and closing balance is months end:

As you can see the Interest for the first year comes out to be=&5497.33, I have not attached entire excel as only 12 months data is needed. Hope the solution helps, please give a thumbs up if you like the answer so that It encourahes me to answer more quetions effectively.