Determine the annual repayment schedule for the first two years (i.e., interest,

Question

Determine the annual repayment schedule for the first two years (i.e., interest, principal repayment, and balance owed) for each of the following. (Assume that only one payment is made annually.) Compare the payments required by each mortgage. What conclusions can you draw?

A) $100,000 conventional mortgage for 25yrs at 5%

B) $100,000 conventional mortgage for 20yrs at 5%

C) $100,000 conventional mortgage for 25yrs at 6%

Explanation / Answer

a> Present Value of annuity 1 where i=5 and n=25 14.094 Equated Annual Amount=100000/14.094 7095 Interest for the first year=0.05*100000 5000 Principal Repayment(7095-5000) 2095 Balance due for 2nd year 97905 Interest for the 2nd year=0.05*97905 4895 Principal Repayment=7095-4895 2200 Balance due at 3rd Year=(97905-2200) 95705 b> Present Value of annuity 1 where i=5 and n=20 12.462 Equated Annual Amount=100000/12.462 8024 Interest for the first year=0.05*100000 5000 Principal Repayment=(8024-5000) 3024 Balance due for 2nd year=100000-3024 96976 Interest for the 2nd year=0.05*96976 4848.8 Principal Repayment=7095-4848.8 2246.2 Balance due at 3rd Year=(96976-2246.2) 94729.8 c> Present Value of annuity 1 where i=6 and n=25 12.783 Equated Annual Amount=100000/12.783 7822.89 Interest for the first year=0.05*100000 5000 Principal Repayment=(7822.89-5000) 2823 Balance due for 2nd year=100000-2823 97177 Interest for the 2nd year=0.05*97177 4859 Principal Repayment=7822-4859 2963 Balance due at 3rd Year=(97177-2963) 94214

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