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You are purchasing a house and your bank is giving you a special mortgage that will...

You are purchasing a house and your bank is giving you a special mortgage that will require annual payments for 25 years. The amount borrowed now is $ 350,000 and the first mortgage payment will be in one year. a. Using C as the payment​ amount, indicate on a timeline all of the cash flows from your perspective related to this mortgage​ (outflows should be indicated as a negative​ number). b. What will your payments be if the interest rate is 3.2 % per​ year? c. What will your payments be if the interest rate is 6.2 % per​ year? d. Comparing your answers in parts b and​ c, when interest rates increased by 3 %​, by what percent did the mortgage payments​ increase?

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Answer #1

The Equal yearly payment amount can be calculated by using PMT formula in excel sheet.

So,

b. the yearly equal payment for 25 years if interest rate is 3.2% is,

Loan Amount 350000
Number of Year 25
Interest Rate 3.20%
Installation (PMT Formula in Excel) 20550.31

c. Then, if interest rate is increased to 6.2%

The Payment will be as follows calculation:

Loan Amount 350000
Number of Year 25
Interest Rate 6.20%
Installation (PMT Formula in Excel) 27901.83

d. Similarly, if interest rate is increase by 3% in both option,

The give is change percentage after in ncreased in interest rate

Option b. yearly payment 20550.31
Option c. yearly payment 27901.8
Change Percentage 35.77%
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