Sue and Sam borrowed $45,000 to buy a home unit. The bank loan is repayable in equal half-yearly instalments over 25 years at an interest rate of 12% per annum. Two and a half year's later the interest rate has risen to 14%. As they cannot increase their repayments, Sam asks the bank to extend the loan period. The bank refuses their request. Required:
i. Calculate the instalment payments for the loan.
ii. Calculate the amount of the loan still outstanding when the interest rate rises.
| Loan = 45,000 | |
| Period = 25 years | |
| Rate = 12% | |
| Repayment frequency = half yearly | |
| Part i) | |
| Instalment payment calculation using excel | Instalment payment |
| =PMT(12%/2,2*25,-45000,0,0) | 2,854.99 |
| Answer : 2,854.99 | |
| Part ii) | |
| Cumulative Principal repaid in 2.5 years calculation | Principal repaid in 2.5 years |
| =CUMPRINC(12%/2,25*2,45000,1,5,0) | -873.71 |
| Principal outstanding after 2.5 years = 45,000 - 873.71 | |
| Principal outstanding after 2.5 years = 44,126.29 | |
| Answer : 44,126.29 |
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