Accountancy
A newly married couple have applied for a mortgage. The amount of the mortgage they have been approved for is $500,000.00 and it is to be amortized over 25 years. Their broker has given them 2 options:
1. A fixed-rate mortgage for five years, with payments made monthly and an annual interest rate of prime plus one percent.
2. A fixed-rate mortgage for ten years, with payments made biweekly and an annual interest rate of prime plus two percent.
Prime rate is 1.5% currently, and it’s expected to increase by .25% yearly for the next ten years. If their goal is to pay down as much of the principle as possible over then next 10 years, which mortgage option should they choose?
*please show formulas used. Thank you!
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