Part A
You are thinking of purchasing a house. The house costs$350,000. You have $50,000 in cash that you can use as a downpayment on the house, but you need to borrow rest of the purchaseprice. The bank is offering a 20-year mortgage that requiresmonthly payments and has an annual interest rate of 5% per year.Determine your monthly payments if you sign up for this mortgage.Draw the amortization schedule, monthly, using Excel. Calculate thetotal amount of interest paid throughout the life of the loan.Create a graph depicting the changes in the portions of interestand principal for each monthly payment throughout the life of theloan. Identify the period of the break-even point, where theprincipal and interest payment amounts are equal.
Part B
Suppose you can only afford a monthly mortgage payment of $3,000per month, would you purchase this house, if the interest rateincreases to 7% per year and the length of repayment decreases to15 years? Explain. Draw the new amortization schedule in a separateExcel sheet. Calculate the total amount of interest paid throughoutthe life of the loan. Even though the interest rate is higher, canthe total amount of interest paid for the life of the loan be lessthan the total interest paid in the first amortization schedule? Ifso, by how much less? Explain.
