You are about to make your dream of a house of your own come
true. For years you have been saving for this moment and now, after
months of searching for a suitable house for your family of four,
you have found a spacious three-bedroom detached house with a
little garden just outside of Dubai and is about to sign the
purchase contract. You feel comfortable with the financing
arrangement you have made. Requiring a 10 percent down payment on
the AED price of the house, Your bank grants you a long term loan
(mortgage) with fixed monthly payments at an
annual percentage rate (APR) indicated in the spreadsheet. you know
that interest will be compounded monthly. Here are
last minute questions that you took on the task to answer after
your attended the FINC220 Financial management class on this
specific topic. In particular, you are ready to calcualte:
1. The size of the monthly payment required to pay off the loan
over the maturity period.
2. The total payments that you will be required to make over the
life of the loan.
3. How much of the loan would still be outstanding after 20
years of payments.
4. The portion of the monthly payment that goes towards
principal reduction versus interest coverage (use the first
payment, the payment at the end of year 10, the payment at the end
of year 20, and the very last payment as an example), and
5. How much interest you would have to pay in a given year (use
the first and the last year as an example).
Alternatively, you could borrow at a flexible rate starting at
8.25% percent per year based on a 10 percent down payment. You
believe that interest rates will remain unchanged for several years
but eventually will go up. More specifically, you estimate the
resulting annual mortgage rate as follows:
6. Calculate for each period the resulting monthly
mortgage payments.
7. prepare the flexible amortization schedule based on your
prediction of interest rate movements.
7. Over the full 30-year term, which mortgage would result in
the lower total interest payments?
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