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You are considering buying a house close to the university so that you can devote more time to your academic career. You have estimated that you can afford $3500 per month as a mortgage payment because you plan to rent rooms out to your friends. You have managed to find a banker that is a risk taker and is willing to loan you money for the house under the following conditions: 5% APR compounded biannually, 10% down payment, a term of 4 years, monthly payments, and an amortization period of 25 years.
1. What is the maximum price you can afford to pay for a house?
2. Is this mortgage a conventional mortgage? Why?
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Consider a standard mortgage (360 months) with monthly payments and a nominal rate (monthly compounding) of 6.70%. What portion of the payments during the first 30 months goes toward principal? 14.80% 15.37% 15.32% 15.44% 14.62%
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