Loan amortization practice questions
Tutorial 1
1. Sam took a 30-year mortgage for $500,000 at an annual interest rate of 9%.
a. If, after 10 years, interest rates drop and you want to refinance, how much principal is
to be paid on your mortgage?
b. If you can refinance your mortgage for the remaining 20 years at an annual interest
rate of 7.2%, what will your monthly payments be?
c. How much will you save in interest in 20 years by paying the lower rate?
2. Chris Columbus bought a house for $293,000. He put 20% down and obtained a simple
interest amortized loan for the balance at 5.375% annually interest for 30 years.
a. Find the amount of Chris’s monthly payment? (answer to 2 decimal places)
b. Find the total interest paid by Chris.
c. Most lenders will approve a home loan only if the total of all the borrower’s monthly
payments, including the home loan payment, is no more than 38% of the borrower’s
monthly income. How much must Chris make in order to qualify for the loan?