Based very closely on a past examination question – so this might be challenging, if you haven’t mastered mortgages yet, but it is very examinable and very worth your while attempting
Sundar has just purchased a house in Melbourne, at a total cost of $1,000,000. He has saved up a deposit of $200,000 towards this amount, and is covering the balance using a mortgage from ROOMS Home Loans. The mortgage is a 30 year standard repayment mortgage, with monthly payments. The interest rate is fixed at 5.50% per annum for the first five years, and after that reverts to the ROOMS standard variable rate.
a. Calculate Sundar’s monthly repayments over the first five years.
b. Calculate the amount Sundar still owes on his mortgage after exactly five years.
c. During these five years, money market interest rates have increased unexpectedly. As a result, after five years, the ROOMS standard variable rate is 7.50% per annum. Calculate Sundar’s subsequent monthly repayments at this rate.
d. What is the total amount of interest (in dollars) Sundar has paid to ROOMS Home Loans over the first ten years of his mortgage, assuming the variable rate remains constant until the end of year ten?