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hotpotato |
07/06/05 |
I have a question to ask you and I want to show you what i have
done so I am on the right track. Can you please let me know if i'm
doing the right thing?
question
You wish to purchase a $220,600 semi-detached house. You decide to
take out a mortgage at a well known bank. The bank offers you a
fixed mortgage at a rate of 9.20% for over a 25 year term. The bank
also requires 20% of the purchase price placed as a down-payment.
You negotiate with the bank to make the mortgage payments bi-monthly
instead of monthly payments so that the interest portion is paid off
faster.
a) What is your bi-monthly payment if the mortgage is amortized
over the next 25 years?
b) You wish to find out the total interest you are paying on
this mortgage. Using MS Excel, prepare a mortgage schedule to
illustrate how the mortgage will be broken down over the next 25
years. Also show the total amount of interest that will be paid on
the mortgage.
for part a) i took the 9.20 rate and converted to a semiannual rate
then converted it to a bimonthly rate.
EAR (effective annual rate) = (1 + quoted rate/m)^m - 1 where m =
number of times compounded
(1 + .09200/2)^2 - 1 = .09412
then had to convert it to bimonthly
quoted rate / m = [EAR + 1]^1/m
(1.09412)^1/24 - 1 = .00375
principal payment = 220600 x .20 = 44120
down payment = 176480
using the Present value annuity formula
i have present value as 176480
rate = .00375
and n (number of payments) as 600 because 24 (bimonthly) x 25 (25
year term) = 600
and i got my bimonthly payment answer as 740.13598
==================-----------------------------
b) for finding the total interest paid on the mortgage I'm not quite
sure how to do that.
I am to use the headings:
1. principal amount at beginning
2. bimonthly payment from part a)
3. interest component of bimonthly payment (interest rate *
principal amount at beginning of period)
4. principal componnent of bi monthly payment (bi monthly payment
less interest component)
5. principal amount at end of period (principal at begginning less
principal componennt paid during month)
i am wondering about the interest rate, i 'm not quite sure which
interest rate to use and how to construct a mini mortgage schedule.
Can you please check the above answer for me.
Thank you so much! |
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