Question

7.If you had a 6.3 percent, $350,000 30-year fixed-rate mortgage, a. how long would it take before you had repaid half the loan balance due? (4 points) b. If you paid an extra $400 per month to reduce the principal due on the mortgage, how long would it take to repay 70% of the principal due? (4 points) c. If you paid an extra $400 per month to reduce the principal due on the mortgage, how long would it take to repay the entire principal due? (4 points) d. If you paid an extra $400 per month to reduce the principal due on the mortgage, how much is the total interest saving, compared to the original mortgage? (4 points)

Answer 1

EMI will be $ 2166 . Calculation is as follows

350000= x * (1/(1+6.3%) )30

Where x is per annum EMI ,if we dived annual EMI with 12 , we get per month EMI, which is 2166 (it includes principal and interest) .

a) So we prepare EMI schedule for 360 periods , at 254th EMI, outstanding balance will be $175771 . So it will take 21.16 years.

b) so we pay Rs. 400 extra in the EMI, then 70% of .$350000 will be paid by 194th installment and the calculation is as follows

(1+(6.3%/12)) nn = 350000*70%

Then n= 194

c) (1+(6.3%/12)) n = 350000

Then n= 241 where loan outstanding is zero

d) in original mortagage the total interest amount is $429904 where as when extra 400 has been paid in per EMI the total interest amount as per EMI schedule is $ 266925 , so there is interest saving of $ 162978.

I couldn't submit original as well as revised EMI schedule for all 360 periods due to space constraint. Thank you