You would like to buy a big boat.  You do your research and find the boat you want in Portugal.  The price of the boat is $300,000 and it will cost $20,000 to have the boat delivered to Halifax.

You would like to buy a big boat.  You do your research and find the boat you want in Portugal.  The price of the boat is $300,000 and it will cost $20,000 to have the boat delivered to Halifax.  You go to the bank to borrow the entire amount of the purchase and the bank offers you a loan with a 20-year amortization at 5% (monthly compounding) with a 5-year term.  You plan on making monthly payment on this loan.

  1. Calculate your monthly payments. (3 marks)

 

  1. At the end of the 5th year, you will need to negotiate a new interest rate and a new payment schedule. The loan contract allows you to pay down 10 percent of the original loan amount with no penalty. You have saved the 10 percent so you will pay down the amount you owe to the bank.  How much do you still owe the bank before you pay down the loan amount? (2 marks)

 

  1. When you go to the bank to re-negotiate your loan with the bank. Interest rates are now 4.75 percent (monthly compounding).  If you make the payment to reduce the loan balance for the remaining amortization period, what are your new loan payments? (3 marks)

 

  1. If this loan had been to purchase a summer home, explain what changes would be made for your calculations in the previous parts of this question? No calculations required. (2 marks)
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