Problem
Suppose you want to buy a house for $ and you have $ in savings you can use as a down payment.
The rest you finance with a year mortgage monthly payments with a quoted interest rate of APR
Assume that this mortgage is amortized over years.
a What are the monthly payments over the year term of the mortgage?
b How much do you still owe three years after you took out this mortgage ie immediately after you made the
th monthly payment
c What is the principal portion of the th mortgage payment?
d What would be the biweekly payments you would make payments once every two weeks if you switched to
biweekly payments right after you made the th monthly payment. Assume there is no penalty for switching
and that the effective interest rate remains the same. Also assume that you would make biweekly payments for
the remainder of the term, ie years, and that a year has exactly weeks.
e Suppose your bank offers you a car loan with a monthly compounded APR of Which of the two loans is
cheaper: the mortgage or the car loan? Or are you paying the same effective interest rate on both?
