Question

Assume that a house cost USD 150,000 and the borrower puts in a 25%

deposit and borrows the difference from GCB Bank payable over 25 years.
The mortgage rate is 12% a month. Assuming the payment-to-salary ratio is
75% for a given exchange rate of USD to Cedis as 12.5
Required:
i. Determine the monthly mortgage payments.
ii. Prepare an amortization schedule demonstrating the flow of transactions for the
first five (5) months of the payment.
iii. How much should his net salary be in cedis to qualify for the facility

Answer 1

To determine the monthly mortgage payments, calculate the loan amount (75% of $150,000), apply the monthly mortgage rate (1% of the loan amount), then use the formula for a fixed-rate mortgage. The monthly mortgage payment is approximately $926.22.

Step-by-step explanation:

To determine the monthly mortgage payments, we first need to calculate the loan amount. The borrower put in a 25% deposit, so the loan amount is 75% of $150,000, which is $112,500. Next, we need to apply the mortgage rate. The mortgage rate is 12% per year, but since it's monthly, we divide it by 12 to get 1% per month. So, the monthly mortgage rate is 1% of $112,500, which is $1,125.

To calculate the monthly mortgage payments, we can use the formula for a fixed-rate mortgage:

Monthly Mortgage Payment = (Loan Amount * Monthly Mortgage Rate) / (1 - (1 + Monthly Mortgage Rate)^(-n))

Where:
Loan Amount = $112,500
Monthly Mortgage Rate = $1,125
n = 25 years x 12 months/year = 300 months

Substituting these values into the formula, we get:
Monthly Mortgage Payment = ($112,500 * $1,125) / (1 - (1 + $1,125)^(-300))

Using a financial calculator or spreadsheet software, the monthly mortgage payment is approximately $926.22.