You financed the purchase of a $300,000 apartment with a down payment in cash of 20% of
Question:
You financed the purchase of a $300,000 apartment with a down payment in cash of 20% of the purchase price. The remaining 80% is financed with a mortgage with a 1% monthly interest rate over the next 20 years. The mortgage is repaid with equal monthly installments.
a. Compute the monthly installments on the mortgage.
b. What is the outstanding principal balance of the mortgage after 5 years (i.e., after 60 installments)?
c. (Challenging) Ten years later (after 120 installments), your bank manager offers to refinance your mortgage with a new loan carrying a 0.9% interest rate for a one-time commission. What is the maximal commission you would be willing to pay? (Hint: Think about the “fair market value of the loan” and the “contractual value” of the loan.)
Expert Answer:
Lets break down the problem into three parts a Compute the Monthly Installments on the Mortgage To c... View the full answer
