Reference no: EM132820086

You are planning to buy a house in Toronto that has a price of $1,500,000. One of the local banks has offered you a mortgage at a quoted rate of 5% per year. Interest will be compounded semi-annually. The bank has indicated that they will require a 25% down payment. The bank is prepared to lend you the remainder of the purchase price of the house. The amortization period will be 25 years and the term of the mortgage will be 4 years. You are going to make monthly payments on your mortgage. The payments will be made at the end of each period.

Answer the following questions

a: I. What is the amount of your periodic payment?

ii. How much will you pay in total on your mortgage over the life of your mortgage?

iii. What is the total interest that will be paid over the life of your mortgage?

iv. How much principal will you have paid off during the initial term of your mortgage?

v. How much interest will you have paid off during the initial term of your mortgage?

b: Use the amortization table to determine the first payment where the interest portion of the payment is less than 50% of the total payment.

Identify the payment number where this occurs

c. Assuming that you decide to make additional annual payments of $10,000 during the initial term of your mortgage, how much less do you owe to the bank at the end of the term? The extra payments will be made in months 12, 24, 36, and 48. Assuming you make no additional extra payments during the life of your mortgage how much interest do you save, by making the extra payments during the initial term of your mortgage.