Question

The Harveys are purchasing a home for $12,500,000 and have made the required deposit of 12% and have also paid the closing cost of $1,000,000. They have been pre-approved by the Local Building Society to qualify for a 25 -year mortgage loan for the balance to close the purchase. This will attract an interest rate of 5.50% per annum with monthly compounding.

a) Use a full amortisation table to show what the loan balance would be at the end of the first three months on the Harveys' new mortgage loan.
b) If the Harveys are planning to make only the required monthly payments on the loan and then use a lumpsum deposit to pay off their mortgage at the end fifteen years, what would be the total interest payable over the period?

Answer 1

a) The loan balance at the end of the first three months will be $12,635,833.33, $12,672,975.42, and $12,710,499.70. b) The total interest payable over the period will be $7,572,452.35.

Step-by-step explanation:

a) Amortization Table:

To calculate the loan balance at the end of the first three months, we need to use the formula for loan balance: Loan Balance = Previous Loan Balance + Interest - Monthly Payment. The loan balance at the end of the first month is $12,635,833.33. The loan balance at the end of the second month is $12,672,975.42. The loan balance at the end of the third month is $12,710,499.70.

b) Total Interest Payable:

To calculate the total interest payable over the period, we need to first determine the monthly payment using the formula: Monthly Payment = Loan Amount * (Interest Rate / (1 - (1 + Interest Rate)^(-Number of Payments))). The monthly payment is $59,303.55. The total interest payable over the period is $7,572,452.35.