Chapter 3 section 9

Excel Companion Chapter 3 Section 9
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HOME LOAN AMORTIZATION	*TVM2.xls*

Open the sheet for HOMELOAN in TVM2.xls.

SITUATION: A 9% home loan for $150,000 is to be repaid over 30 years by making equal payments at the end of each month.. Produce an amortization table. The sheet below shows the first 12 payments.

TVM2.xls - HOMELOAN

QUESTIONS:

1.	In the early years of this mortgage which is the larger portion, interest or principal reduction? How does this show up on the chart?
2.	Suppose the interest rate drops to 7.25% from 9% Over the 30 year term of the loan, how much less will be paid in total interest under the lower rate than under the higher rate?
3.	Ann and Lum are considering a $200,000 thirty year mortgage for a new house. They currently estimate that they can afford to make $1,500 monthly payments at the end of each month. Long term rates are currently 8.75 %, compounded monthly and are expected to fall. of a percent)?
	a) At what nominal rate (APR) will Ann and Lum be able to afford this new house (nearest hundredth)
.	b) If rates stay at 8.75% then what is the largest 30 year loan they can afford to repay with $1,500 monthly payments? [You may want to use FinCalc on Page 2 of TVM2.xls or your own calculator]
4.	Ann and Lum are now looking at a less expensive house due to some unexpected change in their combined incomes. They will take out a twenty year $150,000 mortgage at a rate of 8.25%. The bank wants the first month's payment (and all subsequent payments) at the beginning of the month. What is the size of the monthly payment?

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