Class 8 and 9 Before

# C the mortgage broker finds a closed 5 year fixed

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\$500,000 to pay for the condo. C The mortgage broker finds a closed 5-year fixed rate mortgage with an interest rate of 4%, compounded semi- annually. The amortization period is 25 years. C What are your monthly mortgage payments?

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17 Mortgage Example Continued C 1. Convert interest rate We have a nominal rate of 4% compounded semi-annually (i semi ). This tells us that
18 Mortgage Example (3) C 2. The rest is straightforward:

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19 Mortgage Amortization C Each payment (installment) consists of interest and repayment of principal. C The payments in our mortgage example were \$2,630.10 per month. C In the first month, the outstanding mortgage amount is \$500,000. So the interest on that amount is C Then the principal repaid in the first payment is equal to C At t = 1, the remaining principal outstanding is equal to
20 Amortization C How much principal did you repay in the first five years? C How much interest did you pay over the first five years? Therefore the interest you paid over the first five years is equal to

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21 Amortization, still C We can calculate how much of any payment is interest and how much is repayment of principal. C How much of the 21 st payment is interest and how much is repayment of principal? C Need to know the principal outstanding at the beginning of the 21 st period
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