Suppose you want to buy a house for $420,000 and you have $40,000 in savings you...
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Suppose you want to buy a house for $420,000 and you have $40,000 in savings you can use as a down payment. The rest you finance with a 5-year mortgage (monthly payments) with a quoted interest rate of 5.34% (APR). Assume that this mortgage is amortized over 25 years. a) What are the monthly payments over the 5-year term of the mortgage? b) How much do you still owe three years after you took out this mortgage (i.e., immediately after you made the 36th monthly payment)? c) What is the principal portion of the 37th mortgage payment? d) What would be the bi-weekly payments (you would make payments once every two weeks) if you switched to bi-weekly payments right after you made the 36th monthly payment. Assume there is no penalty for switching and that the effective interest rate remains the same. Also assume that you would make bi-weekly payments for the remainder of the term, i.e., 22 years, and that a year has exactly 52 weeks. e) Suppose your bank offers you a car loan with a monthly compounded APR of 5.34%. Which of the two loans is "cheaper:" the mortgage or the car loan? Or are you paying the same effective interest rate on both? Suppose you want to buy a house for $420,000 and you have $40,000 in savings you can use as a down payment. The rest you finance with a 5-year mortgage (monthly payments) with a quoted interest rate of 5.34% (APR). Assume that this mortgage is amortized over 25 years. a) What are the monthly payments over the 5-year term of the mortgage? b) How much do you still owe three years after you took out this mortgage (i.e., immediately after you made the 36th monthly payment)? c) What is the principal portion of the 37th mortgage payment? d) What would be the bi-weekly payments (you would make payments once every two weeks) if you switched to bi-weekly payments right after you made the 36th monthly payment. Assume there is no penalty for switching and that the effective interest rate remains the same. Also assume that you would make bi-weekly payments for the remainder of the term, i.e., 22 years, and that a year has exactly 52 weeks. e) Suppose your bank offers you a car loan with a monthly compounded APR of 5.34%. Which of the two loans is "cheaper:" the mortgage or the car loan? Or are you paying the same effective interest rate on both?
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Related Book For
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
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