Gavin and Holly purchased a $735,000 condominium in Toronto. They paid 20% of the amount as a down payment and secured a 25-year mortage for the balance. They negotiated a fixed interest rate of 2.5% compounded semi-annually for a 5-year term with repayments made at the end of every month. Their mortgage contract also stated that they may prepay up to 15% of the original principal every year without at interest penalty. At the end of the first year, in addition to the regular monthly payment, they made a lump-sum payment of $30,000.

a. What was the size of the monthly payment?

b. What was the principal balance at the end of the first year?

c. By how much did the amortization period shorten after they made the lump sum payment at the end of the first year?

Answer rating: 100% (QA)

a To find the size of the monthly payment we need to use the formula for the monthly payment of a mortgage P PV r 1 1 rn where P is the monthly paymen... View the full answer