You want to purchase a condo in downtown Boston for $1,200,000. You can finance 80% of its cost by receiving a 20-year mortgage. Considering your income and your credit score, your bank offered 4.5% interest on your mortgage. For simplicity assume that you make yearly payments to your mortgage. Build an amortization schedule for this loan in Excel and answer the following questions.
a. How much in total do you have to pay back to the bank?
b. How much do you owe to the bank at the end of year 10?
c. At the end of year 10, you decide to refinance your home with a new 15-year 3.5% mortgage. How much is your new yearly payment?
d. Consider the initial mortgage (not the case where you refinanced). Starting from year 11, you decide to increase your yearly payments by 10% hoping that it helps you pay off your mortgage sooner. In this case, how long does it take for you to pay off your mortgage?