Question 5 Lawrence bought a new house for RM388 000. He needed to pay a 5%...

Question 5

Lawrence bought a new house for RM388 000. He needed to pay a 5% down payment. The balance was borrowed from a finance company that charged interest at 7.23% compounded monthly. The period of the payment was 20 years.

Find the amount he needed to borrow from the finance company.
Find the monthly installment payment made to the finance company.
After paying for 13 years, he decided to settle all the unsettled loan in one single payment, find:

The amount of this single payment.
The total interest paid.
The amount of rebate from the finance company.

Solutions

Expert Solution

(a) House Price = RM 388000 and Downpayment = 5 % = 0.05 x 388000 = $ 19400

Amount Borrowed = Mortgage Amount = 388000 - 19400 = $ 368600

Interest Rate = 7.23 % compounded monthly, Mortgage Tenure = 20 years or (20 x 12) = 240 months

Applicable Monthly Rate = 7.23 / 12 = 0.6025 %

(b) Let the monthly installments be $ N

Therefore, 368600 = N x (1/0.006025) x [1-{1/(1.006025)^(240)}]

368600 = N x 126.7163

N = 368600 / 126.7163 = $ 2908.86

(c) (i) Tenure Remaining After 13 years = (20-13) x 12 = 84 months

Single Settlement Value = Mortgage Balance outstanding at the end of Year 13 = Sum of the present values of the remaining monthly payments = 2908.86 x (1/0.006025) x [1-{1/(1.006025)^(84)}] = $ 191304.93

(ii) Total Interest Paid = Single Settlement + Sum of Monthly Payments - Original Mortgage Value = 191304.93 + 13 x 12 x 2908.86 - 368600 = $ 276487.23

(iii) Amount of Rebate = Sum of the Remaining Monthly Payments - Single Settlement = 7 x 12 x 2908.86 - 191304.93 = $ 53039.38

jeff jeffy answered 1 year ago

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