Question

There are two related questions in this mortgage problem. Must respond to both. Suppose you are buying a house that costs $300,000. You put 25% as down payment and the rest you get 30-year mortgage with your Bank-Key. Interest rate is 3.4% compounded semi-annually. (i) Prepare the first four months of your "amortization schedule (ii) Suppose you are planning to pay off the remaining debt as "balloon payment at the end of year 10 with 1.5% prepayment penalty. How much money do you need to pay to Bank-Key to own your house completely at the end of year 10? Personal Amortization Schedule Month Beg Bal PMT Interest Principal End Bal 1 2 3 4.

Answer 1

Solution :-

Interest rate for 6 months = 3.4% / 2 = 1.7%

Monthly rate = ( 1 + 0.017 )^1/6 - 1 = 0.2813%

Now Amount Financed = $300,000 - ( $300,000 * 25% ) = $225,000

Total Installemtnts = 30 * 12 = 360

Monthly installment = $225,000 / PVAF ( 0.2813% , 360 )

= $225,000 / 226.178

= $994.79

(ii)

Principal Outstanding after 10 Years = $994.79 * PVAF ( 0.2813% , 240 )

= $994.79 * 174.3412

= $173,432.93

Now amount after penalty = $173,432.93 + ( 1.5% * $173,432.93 ) = $176,034.42

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