Question

# Today is 1 July 2019. Jake is 35 years old and he is planning to purchase

an apartment valued at \$700,000 on 1 January 2027. Jack believes that, at the time of purchasing the house, he should have enough saving to cover 20% of the apartment price (i.e., \$140,000) on 1 January 2027 and he can borrow the remaining 80% of the apartment price (i.e., \$560,000) through a 30-year mortgage (it starts from 1 January 2027). (30 marks) It is assumed that Jake has two loan packages to choose between on 1 January 2027. • Package 1. - Jack will make 360 monthly repayments at the end of each month over the 30-year loan period (from 1 January 2027 to 31 December 2056) with the first payment being made on 31 January 2027. This loan needs to be fully repaid by the end of 30 years. - This package has an annual fee of \$500. The package fee is paid on 31 July of each year during the 30-year loan period (from 1 January 2027 to 31 December 2056). The first one will be paid on 31 July 2027. - This package has a one-time loan establishment fee of \$1,000 paid on 1 January 2027. - The interest rate of this package is j12 = 6% p.a. • Package 2. - Jake will make 360 monthly repayments at the end of each month over 30-year loan period (from 1 January 2027 to 31 December 2056) with the first payment will be made on 31 January 2027. This loan needs to be fully repaid by the end of 30 years. - Jake can have a five-year interest-only-period at the beginning of the mortgage. Jake's repayments will be interest-only1 for the first 5 years 1 Interest-only repayment means your repayments only cover the interest on the amount you have borrowed, during the interest-only period. For example, if you borrow \$1,000 through a fiveyear mortgage on 1 July 2019 with a one year interest-only period at j12 = 6% during the first year (1 July 2019-30 June 2020), your monthly repayment is \$1, 000×6%/12 = \$5 per month. On 1 July 2020, you need to use the remaining four years to repay the borrowed \$1,000. The present value on 1 July 2020 of all payments in the remaining four years should be equal to \$1,000. 1 ACST201 Financial Modelling Spreadsheet Project Task 3 S2 2019 (i.e., first 60 payments will be interest-only payments), followed by payments of principal plus interest for the following 25 years. - This package has an annual fee of \$650. The package fee is paid on 31 July of each year during the 30-year loan period (from 1 January 2027 to 31 December 2056). The first one will be paid on 31 July 2027. - This package has a one-time loan establishment fee of \$1,500 paid on 1 January 2027. - The interest rate of this package is j12 = 6% p.a
1.Calculate the loan repayment amount (excluding the annual fee and establishment fee) for each month of package 1 and package 2.

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