Susan buys a house at a price of R500 000. She obtains a mortgage bond from XYZ
Question:
Susan buys a house at a price of R500 000. She obtains a mortgage bond from XYZ Bank. Assume that Susan will be charged a fixed interest rate of 12% (Note: the 12% is an annual percentage rate or a 1% monthly rate.) Susan has 20 years to repay the loan.
a. Calculate the monthly payment (instalment) that Susan has to make to the bank.
b. Three years later, Susan sells the house after paying 36 monthly instalments to the bank. She wants to cancel the 20-year loan that she obtained from the bank and settle the outstanding amount that she owes. Susan did not pay much attention to the statements that she received from the bank over the 3-year period and is horrified when she discovers that she still owes the bank R478 227,62. She expected the amount to be a lot smaller. Explain to Susan why she still owes such a large sum of money to the bank.
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe