You are considering the purchase of a home for $700,000. You have available a deposit of...

You are considering the purchase of a home for $700,000. You have available a deposit of $100,000. The bank will lend you money at 7 per cent per annum compounded monthly over a period up to 20 years. If you borrow the required funds over 20 years, what are the monthly repayments? After two years, how much do you still ow the bank? What is the interest component of the 25^th repayment?

Solutions

Expert Solution

1. Monthly payment = Loan amount / present value Annuity factor(0.07/12,20*12)

i = Interest rate per month = 0.07/12 = 0.583%

Total payment periods = n = 20 years * 12 months = 240

Monthly payment = 600000 * i / [ 1 - (1+r)^-n]

Monthly payment = 600000 * 0.583% / [ 1 - (1.00583)^-240]

Monthly payment = 600000 * 0.583% / [ 1 - 0.24760]

Monthly payment = $4649.18 (approx)

Cumulative principal paid = $29579.25

Loan balance after 2 years = 600000 - 29579.25 = 570420.75

3. Interest amount in payment 25 = $3327.45

*Please comment if you face any difficulty and please don't forget to thumbs up

jeff jeffy answered 1 year ago

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