Exercises - Mortgages

1. Buyer Jones is considering different terms for his $125,000 mortgage. Calculate the
applicable monthly payment for the following options:

- Option 1: 7.25% amortized over 20 years

- Option 2: 7.75% amortized over 25 years
- Option 3: 6.75% amortized over 15 years

Which is the lowest payment and why?

2. Sam Flynn requires $5,000 of funds for personal expenses. His bank has agreed to
loan this amount, based on a 9% annual rate compounded monthly, for three
months. Jones does not have to pay the interest until the loan comes due at the end
of the three months. How much principal and interest will he owe at that time?

3. Mr. Jones is debating whether to make semi-monthly or monthly payments on the

$125,000 mortgage for his new home. The interest rate is 8% and the amortization
is 25 years. What is the difference paid per month when comparing these two
arrangements and why?

4. Seller Smith, after reading an article concerning the benefits of having a bi-weekly
payment mortgage in lieu of a traditional monthly arrangement, decides to
investigate further.

- (a) If Smith has a $75,000 mortgage at 7.5%, what will his bi-weekly
payments be if the loan is amortized over 15, 20, or 25 years?
- (b) If the interest rate were 8.0%, what payment differences would result,
for 15, 20 and 25 years?

5. You take out a 5-year balloon mortgage for $150,000. The monthly payment is
equal to that of a 15-year mortgage with an annual percentage rate of 5%. Find
the balloon payment and the total interest that you pay.

6. You take out a 7-year balloon mortgage for $120,000. The monthly payment is
equal to that of a 30-year mortgage with an annual percentage rate of 5.5%. Find
the balloon payment and the total interest that you pay.

7. You take out a home mortgage for $190,000 for 20 years at 5%.
a. What is the least amount, to the nearest dollar, that you need to pay in
addition to the regular payment to pay off the mortgage 5 years early?
b. Compare the total interest you pay for the 20-year mortgage to the total
interest you pay when you pay off the 20-year mortgage 5 years early.
c. Compare the total interest you pay for a 15-year mortgage for the same
amount and at the same rate to the total interest you pay when you pay
early.
8. You take out a home mortgage for $238,000 for 30 years at 5%. Each month, you
make the regular payment of $1277.64 plus an additional $60.
a. How much sooner do you pay off the mortgage?
b. How much do you save in interest?

9. You take out a home mortgage for $260,000 for 30 years at 6%. Each month, you
make the regular payment of $1558.83 plus an additional $100.
a. How much sooner do you pay off the mortgage?
b. How much do you save in interest?

10. You take out a home mortgage for $275,000 for 25 years at 4%.
a. What is the least amount, to the nearest dollar, that you need to pay in
addition to the regular payment to pay off the mortgage 5 years early?
b. Compare the total interest you pay for the 25-year mortgage to the total
interest you pay when you pay off the 25-year mortgage 5 years early.