Videos: Mortgages and Amortization, part 2

Banks will apply the 30% rule:  no more than 30% of your gross income maybe used for your mortgage payment.  Your gross income is $3,333.33.  You are looking for a 5-year term with a 25-year amortization.  If banks are charging j₂=6%:

1. Find the maximum size of the payment and the maximum mortgage.
2. How much would you owe at the end of the five-year term?
3. After five years the interest rate increases to j₂= 8%.  Find the size of the new payment. (assume the same amortization period)
4. Five years later the interest rate stays the same, but you can afford to pay an extra $12,000 on your mortgage.  Assuming you will amortize the balance over the remaining 15 years, what is your payment?
5. Instead of reducing your payment you would like to keep the payment the same as in part c and reduce the number payments you have left to make.  How much time will you save?

Your gross income is $5,000 per month.  The rate is j₂ = 8% and you are looking for a 3 year term and a 20 year amortization.

1. If the bank uses the 30% rule, find the size of your maximum mortgage.
2. After 3 years you renew your mortgage at the same rate but are able to make a $10,000 payment.
   1. Find the size of the new monthly payment.  Assume you will amortize the remaining balance over 17 years.
   2. Instead of reducing your payment you would like to pay your mortgage off faster and keep your payment the same.  How much time will you save, assuming the interest rate stays the same?

You take a 25-year, $100,000 mortgage with a rate of j₂= 7%.

1. Find your monthly payment – round up to the next dollar.
2. Find the size of the last payment if the interest rate stays constant.
3. How long would it take you to pay off your mortgage using biweekly payments of half the monthly payments, instead of monthly payments?
4. Find the size of the final payment using biweekly payments.
5. How much money would you save by making biweekly payments?

Chapter Attribution

Video chapter in Business Mathematics by Chris Kellman, Leslie Major, Don Mallory, Frank Gruen, and Amy Goldlist shared under a CC BY-NC license.