You wish to buy a house now that costs $400,000. You currently have $110,000 on deposit in
Question:
You wish to buy a house now that costs $400,000. You currently have $110,000 on deposit in a savings account which provides 2% p.a. interest compounded monthly. You are planning to pay for the house in the following way:
- You will pay 20% of the house price from your current savings.
- You will take a couple of bank loans to cover the rest of the house's price.
These two loans are:
- A 3-year fixed-interest personal loan of $20,000
- A 25-year fixed-interest house loan for the rest of the house price (i.e. after paying from the personal deposit and the $20,000 taken as a personal loan)
You also have the following information concerning loans from your bank:
For the loans, your repayment frequency per year will be the same as the frequency of interest compounding per year. Thus, for the 25-year house loan, you will repay at the end of every month; and for the 3-year personal loan, you will repay at the end of every semi-annum.
Additionally, you are planning to deposit $500 at the end of every month into your savings account until 10 years. You expect to make a payment towards the house loan from the money you will have in your savings account after 10 years.
Ignore any other costs, tax, and fees.
Considering the above information, please answer the following:
(A) Determine your monthly repayment for the 25-year house loan
(B) Determine the payment you expect to make from your savings account after 10 years.