What is the total dollar amount of interest

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Suppose XYZ Bank Ltd has made 100 identical mortgage loans today. Each loan is for $1,300,000.00 to be repaid each month over the next 30 years. The interest rate on each loan is 9.5% per annum nominal.

(a) What are the expected monthly cashflows to the bank from making this loan (assuming no prepayments)?

(b) What is the total dollar amount of interest the bank expects to receive from making this loan?

(c) What is the loan outstanding at t=5 (i.e. five years after the loans were originated)?

(d) Suppose that five years from now, interest rates fall to 9.25% pa nominal. Assume that borrowers then refinance their original loans by taking out a new loan over a 25-year period. What is the monthly repayment for the new loan?

(e) What is the dollar amount that borrowers save (in total) as a result of re-financing the loan?

Reference no: EM132714304

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