Question 2: (a) You wish to buy a house. The market value of the house is $650,000 and you have saved up $120,000 as a deposit. (i) What are your monthly repayments if the loan is for 30 years to be repaid on a monthly basis and the interest rate on the loan is 7% per annum nominal? (ii)What is the total amount of interest you expect to pay on the loan? (b) Suppose that after 4 years, interest rates fall to 6.5% per annum nominal. If you re-finance the loan, how much will you save in interest payments? Also assume that the new loan will be for a period of 26 years. (c) Suppose that after a further 4 years, you decide to buy an investment property valued at $850,000. Assume that interest rates are now at 6.0% per annum nominal. (i) If the market value of your original property is now $800,000, what is your equity in your original property? (ii) If the bank calculates the allowable equity in your property as 80% of the market value of your original property minus the outstanding amount on your original mortgage, how much can you borrow to fund your investment property? (iii) What are the monthly repayments on your investment property? Also assume that this loan will be for a period of 30 years. (iv) Briefly explain whether you would prefer to use negative gearing or positive gearing for your investment property.
Question 2: (a) You wish to buy a house. The market value of the house is $650,000 and you have saved up $120,000 as a deposit. (i) What are your monthly repayments if the loan is for 30 years to be repaid on a monthly basis and the interest rate on the loan is 7% per annum nominal? (ii)What is the total amount of interest you expect to pay on the loan? (b) Suppose that after 4 years, interest rates fall to 6.5% per annum nominal. If you re-finance the loan, how much will you save in interest payments? Also assume that the new loan will be for a period of 26 years. (c) Suppose that after a further 4 years, you decide to buy an investment property valued at $850,000. Assume that interest rates are now at 6.0% per annum nominal. (i) If the market value of your original property is now $800,000, what is your equity in your original property? (ii) If the bank calculates the allowable equity in your property as 80% of the market value of your original property minus the outstanding amount on your original mortgage, how much can you borrow to fund your investment property? (iii) What are the monthly repayments on your investment property? Also assume that this loan will be for a period of 30 years. (iv) Briefly explain whether you would prefer to use negative gearing or positive gearing for your investment property.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 3PA: Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate...
Related questions
Question
Please provide the step by step solution to part (b) of the question.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College