You wish to buy a house. The market value of the house is $650,000 and you have saved $120,000 as a deposit. (i) What are your monthly repayments if the loan is for 30 years to be repaid on a monthly basis and the interest rate on the loan is 7% per annum nominal? (ii)What is the total amount of interest you expect to pay on the loan? Suppose that after 4 years, interest rates fall to 6.5% per annum nominal. If you re-finance loan, how much will you save in interest payments? Also assume that the new loan will for a period of 26 years.
You wish to buy a house. The market value of the house is $650,000 and you have saved $120,000 as a deposit. (i) What are your monthly repayments if the loan is for 30 years to be repaid on a monthly basis and the interest rate on the loan is 7% per annum nominal? (ii)What is the total amount of interest you expect to pay on the loan? Suppose that after 4 years, interest rates fall to 6.5% per annum nominal. If you re-finance loan, how much will you save in interest payments? Also assume that the new loan will for a period of 26 years.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please provide answer to part b of the question. Please answer by using formula, not excel.
Transcribed Image Text:Question 2:
(a) You wish to buy a house. The market value of the house is $650,000 and you have saved
up $120,000 as a deposit.
(i) What are your monthly repayments if the loan is for 30 years to be repaid on a
monthly basis and the interest rate on the loan is 7% per annum nominal?
(ii)What is the total amount of interest you expect to pay on the loan?
(b) Suppose that after 4 years, interest rates fall to 6.5% per annum nominal. If you re-finance
the loan, how much will you save in interest payments? Also assume that the new loan will
be for a period of 26 years.
(c) Suppose that after a further 4 years, you decide to buy an investment property valued at
$850,000. Assume that interest rates are now at 6.0% per annum nominal.
(i) If the market value of your original property is now $800,000, what is your equity
in your original property?
(ii) If the bank calculates the allowable equity in your property as 80% of the market
value of your original property minus the outstanding amount on your original
mortgage, how much can you borrow to fund your investment property?
(iii) What are the monthly repayments on your investment property? Also assume that
this loan will be for a period of 30 years.
(iv) Briefly explain whether you would prefer to use negative gearing or positive
gearing for your investment property.
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