Question: Q . 1 Suppose you are considering borrowing $ 1 2 0 , 0 0 0 to finance your dream house. The annual percentage rate

Q.1 Suppose you are considering borrowing $120,000 to finance your dream house. The annual percentage rate is 12% and payments are made monthly.
a. If the mortgage has a 20-year amortization schedule, what are the monthly payments?
b. What effective annual rate would you be paying?
c. How do your answers to parts a and b change if the loan amortizes over 10 years rather than 20?
Q.2 Suppose last year you took out the loan described in problem above (part a). Now interest rates have declined to 8% per year. Assume there will be no refinancing fees.
a. What is the remaining balance of your current mortgage after 12 payments?
b. What would be your payment if you refinanced your mortgage at the lower rate for 19 years?

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