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Advanced Time Value of Money Problems Question 1 (mortgage problem) (Try to work this question WITHOUT...

Advanced Time Value of Money Problems

Question 1 (mortgage problem)

(Try to work this question WITHOUT using Excel)

You purchase a house that costs $625,000 with an 8%, 30-year mortgage. You make a 20% down payment to avoid PMI insurance.

  1. What is your monthly payment?

  2. Amortize the first and second payments.

  3. What is the mortgage balance after 5 years?

  4. What percentage of the principal is paid off after 5 years?

  5. Suppose after 5 years you refinance at 6% the remaining balance at a cost of $10,000, for 30 years. What is your new monthly payment?

  6. Further, suppose you maintain the same payments as in (1), i.e. pre-pay on the principal, how many YEARS until you payoff the mortgage?

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