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Solve the extra period added to the term of the loan

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Scott Larimore bought a house three years ago that cost $750,000. Scott put up 20% deposit and borrowed the rest from Suncorp Bank at a rate of 7.2% per annum, compounded monthly, for 10 years. The loan will be repaid by equal monthly repayments, consisting of principal and interest. Three months ago, Suncorp Bank notified Scott that after the last monthly repayment for the third year, the interest rate on his loan will increase to 9.6% per annum, compounded monthly, in line with market rates. Also, from the fourth year of his loan Scott can either increase the monthly repayment (so as to pay off the loan by the originally agreed date), or he can keep paying the same original monthly repayment and extend the term of the loan.

Question 1: Calculate the new monthly repayment if Scott pays off the loan by the originally agreed date.

Question 2: If Scott keeps on paying the original repayment, calculate the extra period added to the term of the loan.

Reference no: EM132522983

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