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You buy a house for $500,000 with 5% down and amortize over 30 years. i....

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Accounting

You buy a house for $500,000 with 5% down and amortize over 30 years.

i. Including CMHC insurance, how much will your outstanding mortgage be when the mortgage is issued?

ii. If house prices drop by 20% over 3 years and the interest rate on the mortgage is 3.59%, how much larger is the outstanding mortgage than the value of the house? (This situation is often called underwater and can lead to a number of problems e.g. one needs to add money to sell).

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