SOLUTION: Antonio is buying a house for N$960,000. He has to pay a 10% deposit and can secure a bond from his bank repayable over 20 years at 12% p.a. interest. (a) What is his monthly ins

Question 1138919: Antonio is buying a house for N$960,000. He has to pay a 10% deposit and can secure a bond
from his bank repayable over 20 years at 12% p.a. interest.
(a) What is his monthly instalment? (4 marks)
(b) Another bank is now giving him two better options i.e. to increase the payback period to 30
years or to reduce the rate by 1.5% p.a. Find the monthly instalment for each option.
(i) 30 year payback period (4 marks)
(ii) Reduced interest rate (4 marks)
(c) How much money will he save per month using the cheapest option?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
the cost of the house is 960,000.

he has to pay a 10% deposit and can secure a mortgage from his bank repayable over 20 years at 12% per year interest compounded monthly.

the amount that has to be mortgaged is 90% of 960,000 = 864,000.

i used the financial calculator that can be found at https://arachnoid.com/finance/

that calculator tells me that the monthly payment is $9,513.38.

another bank give him two other options.

the first option is a 30 year mortgage rather than a 20 year mortgage.

using this option, his payment will be $8,887.21, but that will be for 360 payments rather than 240 payments.

the second optiom is to keep the 20 year mortgagee but reduce the interest rate by 1.5 percent per year.

that would make the interest rate equal to 10.5% per year rather than 12% per year.

divide that by 12 and you get .875 percent per month.

the payment for that option would be $8,626.00 per month.

the cheapest option is 20 year mortgage at 10.5% interest rate per year rather than 12% interest rate per year.

with that option, he would save $9513.38 minus $8,626.0 = $887.38.

the calculations for each of these options using the referenced financial calculator are shown below.

$$$

any questions about what i did and why i did it, let me know.

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