You are planning to buy a 4 bedroom house in Hamilton that has a price of $1,000,000.
Question:
You are planning to buy a 4 bedroom house in Hamilton that has a price of $1,000,000. One of the local banks has offered you a mortgage at a quoted rate of 5% per year. Interest will be compounded semi-annually. The bank has indicated that they will require 25% down payment. The bank is prepared to lend you the remainder of the purchase price of the house. The amortization period will be 30 years and the term of the mortgage will be 3 years. You are going to make monthly payments on your mortgage. The payments will be made at the end of each period. You have heard from your friend who has just completed AFF210, that by making additional payments on your mortgage during the initial term, you can reduce the remaining balance at the end of the initial term. Your friend has shown you a sample amortization schedule template (below).
Sample Mortgage Schedule
Payment Number | Principal Amount at the Beginning | Interest Expense incurred during the month | Balance Owing Before Payment | Amount of Payment | Principal Component of Payment | Principal Amount at the End of Period | Principal Paid / Amount of Payment |
1 | |||||||
2 | |||||||
… |
What is the amount of your periodic payment?
How much will you pay in total on your mortgage over the life of your mortgage?
What is total interest that will be paid over the life of your mortgage?
How much principal will you have paid off during the initial term of your mortgage?
How much interest will you have paid off during the initial term of your mortgage?
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar