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You are in the process of obtaining a 10-year fixed rate mortgage on a house that you are purchasing. The mortgage amount is $225,000 and the mortgage rate is 4.8%. (This is the nominal annual rate.) Assume that all monthly payments are made at the end of every month.
What is the monthly payment on the mortgage?
What percentage of your payments the third year goes toward repayment of principal?
After 3 years (36 months), what will be the remaining balance on your mortgage?
What is the effective annual rate of the mortgage?
Another bank has calculated that based on your financial situation, your household can obtain a mortgage with a maximum payment of $1,725 a month. However, this bank will offer you a 15-year fixed-rate mortgage with a nominal annual rate of 5.0%. Again, assume that all payments are made at the end of the month. Given these terms, what is the maximum amount that you can borrow from this bank?
This answer is given below:.
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