Question

You have set your sights on a house in an up and coming Sydney suburb that is selling for $650,000. You are very excited about the prospects of buying this house and negotiate a 25-year mortgage with 20% down and 5.2% p.a. interest rate, compounded monthly.

B1. (1 mark) What will be the amount of your monthly payments?

B2. (2 marks) For each month for the duration of your mortgage calculate how much of your monthly payment goes to principal re-payment and how much of it is interest. Plot a graph showing a breakdown of your periodic payment into principal repayment and interest. What percentage of your monthly payment on the 36^th month of the mortgage contract goes towards repayment of the principal?

B3. (1 marks) After how long will the principal outstanding be reduced by a half (i.e., equal to half of the initial loan amount)?

B4. (1 marks) What is the amount of total interest you will end up paying over the life of the mortgage?

Answer 1

Answer 1)

Loan Amortization Table
Cost of House		650,000.00
Down payment		130,000.00
Loan Principle Amount		520,000.00
Annual Interest Rate		5.20%
Loan Period (in months)		300.00
Original Repayment Amount		3,100.77	PMT(5.2%/12,300,-520000)

Answer 2)

Repayment Number	Opening Balance	Loan Repayment	Interest Charged	Capital Repaid	Closing Balance
1	520,000.00	3,100.77	2,253.33	847.43	519,152.57
2	519,152.57	3,100.77	2,249.66	851.11	518,301.46
3	518,301.46	3,100.77	2,245.97	854.79	517,446.66
4	517,446.66	3,100.77	2,242.27	858.50	516,588.16
5	516,588.16	3,100.77	2,238.55	862.22	515,725.95
36	488,046.96	3,100.77	2,114.87	985.90	487,061.06
---------
191	270,847.93	3,100.77	1,173.67	1,927.09	268,920.84
192	268,920.84	3,100.77	1,165.32	1,935.44	266,985.39
193	266,985.39	3,100.77	1,156.94	1,943.83	265,041.56
194	265,041.56	3,100.77	1,148.51	1,952.25	263,089.31
195	263,089.31	3,100.77	1,140.05	1,960.71	261,128.59
-----
204	245,133.89	3,100.77	1,062.25	2,038.52	243,095.37
250	141,610.00	3,100.77	613.64	2,487.12	139,122.88
251	139,122.88	3,100.77	602.87	2,497.90	136,624.98
252	136,624.98	3,100.77	592.04	2,508.73	134,116.25
253	134,116.25	3,100.77	581.17	2,519.60	131,596.65
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255	129,066.14	3,100.77	559.29	2,541.48	126,524.66
256	126,524.66	3,100.77	548.27	2,552.49	123,972.16
257	123,972.16	3,100.77	537.21	2,563.56	121,408.61
258	121,408.61	3,100.77	526.10	2,574.66	118,833.94
259	118,833.94	3,100.77	514.95	2,585.82	116,248.12
260	116,248.12	3,100.77	503.74	2,597.03	113,651.10
261	113,651.10	3,100.77	492.49	2,608.28	111,042.82
262	111,042.82	3,100.77	481.19	2,619.58	108,423.23
300	3,087.39	3,100.77	13.38	3,087.39	-0.00
		930,230.97	410,230.37	520,000

Graph of repayment:

Interest Charged Capital Repaid 3500 3000 2500 2000 1500 1000 500 寸 寸 寸 寸

In 36 months payment:

Payment of Principle = 985.90/ 3100.77 = 31.795%

Answer 3)

In 195 months , as shown in above table

Answer 4)

	Total Repayment	Principle		Interest paid
Monthly payment*300=	930,230.97	520,000	Total repayment-Principle=	410,230.37