MAP4C Sec. 7.6.Mortgages Homework

  1. Determine the monthly payment for each of the following mortgages, then find the total interest paid over the entire mortgage. The interest is compounded monthly.

a) $140 000 mortgage, amortized over 20 years @ 6%/a.

b) $200 000 mortgage, amortized over 25 years @ 5.25%/a.

c) $250 000 mortgage, amortized over 30 years @ 5.75%/a.

  1. Anita applies for a mortgage of $72 000 amortized over 20 years. The bank currently offers the following mortgage rates, compounded monthly7.

ABC Bank Mortgage Rates

1- year term 7.40%/a.

2-year term 7.45%/a.

3-year term 7.55%/a.

4-year term 7.65%/a.

5-year term 7.75%/a.

a) Calculate the monthly payment for each term.

i) 1 year ii) 3 years iii) 5 years

b) Suggest some reasons to choose a 5-year term instead of a 1-year term.

  1. The Samuels have a mortgage of $123 000 amortized over 25 years at 7.25%/a. compounded monthly. After the original 4-year term, the mortgage is renewed at 6.5%/a. compounded monthly. Calculate the new monthly payment.
  1. In a conventional mortgage, the purchaser can borrow up to 75% of the purchase price of a property. The Murphys plan to obtain a mortgage on a house with a purchase price of $249 000. The mortgage will be amortized over 25 years at 6.5%/a. compounded monthly. Assume the Murphys qualify for the maximum mortgage.

a) What is the maximum conventional mortgage the Murphys can obtain?

b) What will be the monthly payment on the maximum conventional mortgage?

  1. Kiya purchased a house for $210 000. She made a down payment of 25% of the purchase price and took out a mortgage for the rest. The mortgage has an interest rate of 7.25%/a. compounded monthly, an amortization period of 30 years, and a 3-year term. Calculate Kiya’s monthly payment?
  1. In the late 1970’s and early 1980’s, mortgage rates increased dramatically over a short period of time. The Khans initially took out a mortgage of $125 000 with a 25 year amortization period and a 3-year term. The interest rate was 6.75%/a. compounded monthly. When they renewed the mortgage, the interest rate had risen to 18.75%/a. compounded monthly. By how much did the Khans monthly payment increase?

Solutions:

1.a) Monthly Payment is $1003.00 , Interest Paid is $100 720 b) Monthly Payment is $1198.50 , Interest Paid is $159 550

c) Monthly Payment is $1458.93 , Interest Paid is $275 214.80

2.a)i) $575.63 ii) $582.23 iii) $591.08

3. $836.90

4. $186 750 , $1260.95

5. $1074.43

6. $1021.17

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