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The Taylors Agreed to Monthly Payments Rounded Up to the Nearest

question 120

Essay

The Taylors agreed to monthly payments rounded up to the nearest $100.00 on a mortgage of $136 000.00 amortized over 15 years. Interest for the first five years was 8.5% compounded semi-annually. After 30 months, as permitted by the mortgage agreement, the Taylors increased the rounded monthly payment by 10%.
a) Determine the mortgage balance at the end of the five-year term.
b) If the interest rate remains unchanged over the remaining term, how many more of the increased payments will amortize the mortgage balance?
c) How much did the Taylors save by exercising the increase-in-payment option?


Definitions:

Premium

The amount paid for an insurance policy or the price above the nominal or face value of a security or investment.

Swiss Francs

Swiss Francs are the currency of Switzerland, known for their stability and being a safe-haven currency in times of financial market volatility.

Forward Rate

The future interest rate agreed upon in a forward contract, determining the cost of borrowing or lending for future transactions.

Spot Rate

The current market price of a commodity, currency, or security that is available for immediate settlement.

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