Mandy is purchasing her first home, using a conventional mortgage with a principal balance of $550,000 and
Question:
Mandy is purchasing her first home, using a conventional mortgage with a principal balance of $550,000 and an interest rate of 2.75% to facilitate the purchase. She shares with you, her financial planner, that she'd like the payments to be as low as possible until she has some time to get adjusted to her new cash flow situation with mortgage payments, property taxes, utility bills and other expenses.
a. Determine the lowest payment Mandy can make on her mortgage, use a 25-year amortization.
b. You call Mandy a few weeks after she takes possession of her new home to see how she is enjoying being a homeowner. Before the end of the phone call, you remind her to reach out to you as soon as she has a better handle on her cash flow situation so they can begin putting any surplus funds towards the mortgage. Mandy replies, saying that her parents, who are big proponents of paying down a mortgage as quickly as possible, have recommended that she take no longer than 20 years to pay off her mortgage.
Mandy asks you if paying down her mortgage over 20 years, instead of 25 years, will really make a big difference financially?
What would you tell Mandy?
Understanding Financial Accounting
ISBN: 978-1118849385
1st Canadian Edition
Authors: Christopher Burnley, Robert Hoskin, Maureen Fizzell, Donald