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Consider a fully amortizing mortgage loan of $75,000 for 30 years with an interest rate of 12%. What is the loss if Interest
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Answer #1

Loan Amount (PV) = $75,000

No of monthly repayment to be made (N) = 30 years x 12 = 360

Monthly rate of interest (I) = 12%p.a. /12 = 1% per month

Monthly installment amount (PMT) = ?

Using financial calculator or PMT function in excel,

Monthly installment amount (PMT) = $771.46

If interest rate increases to 13%p.a.

Value of Loan (PV) = ??

No of monthly repayment to be made (N) = 30 years x 12 = 360

Monthly rate of interest (I) = 13%p.a. /12 = 1.0833% per month

Monthly installment amount (PMT) = $771.46

Using financial calculator or PV function in excel,

Value of Loan (PV) = $69,739.63

Therefore loss due to increase in interest rate to 13% = 69,739.63 - 75000

Therefore loss due to increase in interest rate to 13% = ($ 5260.37)

Thumbs up please if satisfied. Thanks :)

Comment if further doubts in above solution.

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