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Business Mathematics in Canada 4e
Business Mathematics in Canada, 4/e
F. Ernest Jerome
Loan Amortization; Mortgages

Internet Application Problems



1

Canada Trust has a Mortgage Calculator. It will calculate the "Payment" or the "Principal" or the "Amortization period" if you enter values for the relevant variables. You can select a weekly, biweekly, semimonthly, or monthly payment frequency. If you enter the number of remaining payments for the amortization period (in months) and calculate the "Principal," the calculator give you the mortgage balance using the Prospective Method. The answer will have the usual small error that results when you assume the final payment is equal to the others.
 
2

CM Canada Mortgage Corporation has a very informative Mortgage Graphing Calculator. After you enter the relevant values, the calculator plots a bar chart showing the interest and principal portions of each year's payments. When you move the mouse cursor over a particular bar, the actual dollar amounts of the components are displayed in a ribbon above the bar chart. The calculator also allows you to enter an extra annual year-end balloon payment and/or an increase to the regular payment. The amortization chart then shows the effect of the extra payments on the amortization period and on the total interest paid over the life of the loan.
 
3

Go to the CM Canada Mortgage Web site. Enter the data for the base case of a $100,000 mortgage loan at 7.2% compounded semiannually with monthly payments, a five-year term, and a 25-year amortization.
  1. What is the total interest paid over the life of the loan? What is the balance at the end of the five-year term?
  2. What is the first year in which the principal portion of the 12 payments exceeds the interest portion?
  3. By how much will the amortization period be shortened if each loan payment is increased by $50? What is the reduction in the total interest paid?
  4. How much will the amortization period be shortened (from the base case) if a $500 balloon payment is made at the end of each year? What is the reduction in the total interest paid?
  5. Returning to the base case, what will the monthly payment be upon renewal at 8% compounded semiannually if the original 25-year amortization is continued?

 




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