Question

11. Suppose that you take out a $250,000 house mortgage from your local savings bank. The bank requires you to repay the mortgage in equal annual installments over the next 30 years. Suppose that the interest rate is 5% a year. Then what is the amount of mortgage payment each year? (a) $16,263 (b) $13,452 (c) $12,583 (d) $10,127 12. Consider a borrower that is approved for a standard 15-year, fully amortizing house mortgage with an original balance of $500,000 and a note rate(annual interest rate) of 4.8%.(Standard refers to a fixed rate mortgage contract with level payments.) What is the monthly mortgage payment for the borrower? (a) $24,000 (b) $13,028 (c) $7,920 (d) $3,902

Answer 1

Given that Amount borrowed = $250,000. Annual Interest Rate = 5% Period = 30 years Annual payment times PVIFA (5%, 30) = $250,000 Annual payment times (1 - (1/1.05)^30)/0.05 = $250,000 Annual payment times 15.37245 = $250,000 Annual payment = $16,263 Therefore The correct one is option (a) $16,263. (2) Given that Amount borrowed = $500,000 Annual interest Rate = 4.80% Monthly interest rate = 0.40% \r\n Period = 180 months or 15 years Now consider, Monthly payment times PVIFA (0.40^, 180) = $500,000 Monthly payment times (1 - (1/1.004)^180)/0.004 = $500,000 Monthly payment times 128.13705 = $500,000. Monthly payment = $3,902 Therefore The correct one is option (d) $3,902.