Question: You are considering buying a house close to the university so that you can devote more time to your academic career. You have estimated that you can afford $3500 per month as a mortgage payment because you plan to rent rooms out to your friends. You have managed to find a banker that is a risk taker and is willing to loan you money for the house under the following conditions: 5% APR compounded biannually, 10% down payment, a term of 4 years, monthly payments, and an amortization period of 25 years.
1) What is the maximum price you can afford to pay for a house?
2) Is this mortgage a conventional mortgage? Why?