Question 1

A $100,000 mortgage at 7.1% compounded semi-annually with a 20-year amortization requires monthly payments. How much will the amortization period be shortened if a $10,000 lump payment is made along with the 12^th payment and payments are increased by 10% starting in the third year?

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Question 2

Sam and Jane have a $250,000 mortgage amortized over 20 years at 5.75% compounded quarterly. After 10 years, they decided to reduce the principal amount of their mortgage by $40,000. Calculate their new monthly payment.

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Question 3

Cliff and Marcie are refinancing their 20-year mortgage of $250,000 after 10 years. They are reducing the principal amount by $50,000, but keeping the same monthly payment. If interest is 5.5% compounded quarterly, by how much will Cliff and Marcie reduce the amortization period of their mortgage?

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Question 4

A $100,000 mortgage at 6.9% compounded semi-annually with a 20-year amortization requires monthly payments. The mortgage allows the borrower to increase the regular payment by up to 10% once each year. How much will the amortization period be shortened if payments are increased by 10% after the 12^th payment, and by another 10% after Payment 24?

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Question 5

A marketing innovation is the "cash-back mortgage" wherein the lender gives the borrower an up-front bonus cash payment. For example, if you borrow $100,000 on a 3% cash-back mortgage loan, the lender will give you $3,000 in addition to the $100,000 loan. You pay back only the $100,000 principal over the amortization period. The $3,000 can be immediately applied as a prepayment to reduce the principal balance (to $97,000) or it can be used for any other purpose. You must keep your mortgage with the lender for at least five years.
The cash-back mortgage seems like a good deal but there is more you need to know about advertised mortgage interest rates. The rates you see posted in your local financial institution are just a starting point for negotiations. You can get ¼% knocked off just by asking for it. With some firm negotiating, you can probably get a ½% reduction. If the institution really wants your business, you can get a ¾%, or even a 1% reduction. However, if you take advantage of some other promotion such as a cash-back offer, you will not get any rate discount. So the cash-back offer is not as good as it initially appears.
Which of the following loans should be chosen by the borrower?
1)A standard $100,000 mortgage loan at 6.5% compounded semi-annually?
2)A 3% cash-back mortgage loan for $100,000 at 7.25% compounded semi-annually?
In both cases, the interest rate is for a five-year term and the payments are based on a 25-year amortization. For the cash-back mortgage, assume that the $3,000 cash bonus is immediately applied to reduce the balance to $97,000. (Since the monthly payments are based on the $100,000 face value, the prepayment will shorten the time required to pay off the loan.) Assume money can earn 4.8% compounded monthly.

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Question 6

A $100,000 mortgage at 7.3% compounded semi-annually with a 25-year amortization requires monthly payments. The mortgage allows the borrower to miss a payment once each year. How much will the amortization period be lengthened if the borrower misses the 12^th payment? (The interest that accrues during the 12^th month is converted to principal at the end of the 12^th month.)

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Question 7

A $100,000 mortgage at 6.8% compounded semi-annually with a 25-year amortization requires monthly payments. How much will the amortization period be shortened if payments are increased by 10% starting in the second year and a $10,000 lump payment is made along with the 24^th payment?

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Question 8

The Dawsons are refinancing their 20-year mortgage of $200,000 after five years. They have decided to increase their monthly payment by $300. If interest is 5.25% compounded quarterly, by how much will the Dawson's reduce the amortization period of their mortgage?

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Quiz 13: Loan Amortization: Mortgages

A $100,000 mortgage at 7.1% compounded semi-annually with a 20-year amortization requires monthly payments. How much will the amortization period be shortened if a $10,000 lump payment is made along with the 12th payment and payments are increased by 10% starting in the third year?

Sam and Jane have a $250,000 mortgage amortized over 20 years at 5.75% compounded quarterly. After 10 years, they decided to reduce the principal amount of their mortgage by $40,000. Calculate their new monthly payment.

Cliff and Marcie are refinancing their 20-year mortgage of $250,000 after 10 years. They are reducing the principal amount by $50,000, but keeping the same monthly payment. If interest is 5.5% compounded quarterly, by how much will Cliff and Marcie reduce the amortization period of their mortgage?

A $100,000 mortgage at 6.8% compounded semi-annually with a 25-year amortization requires monthly payments. How much will the amortization period be shortened if payments are increased by 10% starting in the second year and a $10,000 lump payment is made along with the 24th payment?

The Dawsons are refinancing their 20-year mortgage of $200,000 after five years. They have decided to increase their monthly payment by $300. If interest is 5.25% compounded quarterly, by how much will the Dawson's reduce the amortization period of their mortgage?

A $100,000 mortgage at 7.1% compounded semi-annually with a 20-year amortization requires monthly payments. How much will the amortization period be shortened if a $10,000 lump payment is made along with the 12^th payment and payments are increased by 10% starting in the third year?

A $100,000 mortgage at 6.8% compounded semi-annually with a 25-year amortization requires monthly payments. How much will the amortization period be shortened if payments are increased by 10% starting in the second year and a $10,000 lump payment is made along with the 24^th payment?