Question $1(7$ marks$)$ Assume that $3$ years ago you arranged a mortgage with Lender ABC $.$ The mortgage is $$100,000$ at $j2=10\%(2$ means compounded semi$-$annually$)$ amortized over $25$ years with monthly payments and a $5-$year term. Rates have dropped since then. This makes you consider refinancing. Possible penalty:

$($a$)(3$ marks$)$ three$-$month interests

$($b$)(2$ marks$)$ interest rate differential. Assume Lender ABC currently has the following posted rates $($hint which one to use$)$: $1-$yr term: $j2=8\mathrm{.}5\%$;$2-$yr term: $j2=8\%$;$3-$yr term: $j2=7\mathrm{.}5\%$;$4-$yr term: j$2=7\mathrm{.}0\%$; $5-$yr term: $6\mathrm{.}5\%$

$($c$)(2$ marks$)$Based on your calculations, how much penalty to pay if you have a fixed$-$rate mortgage? What if a variable$-$rate mortgage?

Week $3$ Thus

Question $2(8$ marks$)$: Jake wants to buy a house for $150,000.$ He is considering applying for a mortgage. The lending value of the house assessed by the banker is $140,000.$

$($a$)(2$ marks$)$ If Jake takes out a mortgage of LVR $=80\%,$ what would be the amount of down payment?

$($b$)(2$ marks$)$ Down payment if Jake takes out a mortgage LVR $=90\%?$

$($c$)(2$ marks$)$ Suppose Jake chooses $($b$)$ and decides to add the mortgage insurance fees $($MIF$)$ onto the mortgage loan, what would be his total amount of loan? Use the following chart on MIF.

$\backslash$table$[[$LVR$,$MIF$],[80\mathrm{.}1-85\%,],[85\mathrm{.}1-90\%,2\mathrm{.}00\%$