Mortgage

1. You take out a GH¢100,000 mortgage loan at an annual rate of 6% with monthly
payments for 30 years. You plan to sell the property after 12 years. At that time, what
will be the outstanding balance (i.e., remaining principal) on the loan?

2. A loan for setting up a technology-based company and the loan is valued at GH

¢1,000,000. Now they charge an annual interest rate of 12% and the loan has to be repaid
over a period of 10 years. 
Monthly = 12% /12 = 1%
Months = 10 * 12. = 120

i. Calculate the fixed monthly payment.

PMT 1
PV = * (1- ¿
r ( 1+ r )n

PMT 1
1000000 = * (1- ¿.
0.01 ( 1+ 0.01 )120
PMT = 14, 347.

First 1000,000 1% * 1000,000. 10, 000

Second. 1,000, 000 – 4, 347 = 995, 653*1% = 9,956.53

ii. Calculate the outstanding balance after two years

Months = 2 * 12 = 24

( 1+ r )n−( 1+r )t
Outstanding Balance = Principal amount *( n
¿
( 1+r ) −1

( 1+ 0.01 )120− (1+ r )24

= 1000, 0000 * ( 120
¿
( 1+r ) −1
= 882,754.42
iii. Calculate the principal loan repayment at two years time

r ( 1+r )t −1
Principal Repayment = Principal amount * n
( 1+ r ) −1
 24−1
0.01 ( 1+0.01 )
= 1000,000 * 120
( 1+r ) −1
= 5465.01

Fixed payment = Interest payment + Principal repayment

iv. Calculate the interest payment

= 14, 347 – 5,465.01. = 8, 882

3. Calculate the monthly payment for a GH¢330,000 adjustable mortgage home. The owner
has made a GH¢70,000 down payment and plans to finance for 30 years. The current
interest rate is 7%. if the interest rate increase to 10% at the end of the 12 years, what
must be the new monthly payment? 100 basis point = 100/10, 000 = 1%
Mortgage = 330, 0000
Donw payment = 70,000
Outstanding Mortgage = 330, 000 – 70, 000 = 260, 000
R= 7%/12 = 0.0058
Holding Period = 12 *12 = 144

( 1+ r )n−( 1+r )t
Outstanding Mortgage @ 12 years = Principal amount *( n
¿
( 1+r ) −1

( 1+ 0.0058 )360 −( 1+ 0.0058 )144

= 260, 000 * *( 360
¿
( 1+ 0.0058 ) −1

Outstanding balance @ 12 years = 212, 113.05

30 -12 = 18 years n = 18*12

New Fixed payment @ 10% rate Monthly = 10%/12 =0.0083

 PMT 1
212, 113.05 = * (1- ¿
0.0083 ( 1+ 0.0083 )216
=

4. Two friends (Sean and Paul) are new masters degree graduates who have been promoted
to perform the role of area manager. They (Sean and Paul) have 35 years to go on
retirement and have decided to go for a residential mortgage that will take them 30 years
to pay. Given the mortgage and personal details of the two friends in the Table A below,
you are required to,
i. Show which of the two friends is more likely to be granted the mortgage using the
loan-to-value ratio as a criterion and why?
LTV for Sean = GHC 740, 000/ GHC 800, 000 = 0.925/92.55
LTV = Paul = GHC 400, 000/ GHC 600, 000 = 0.667/66.75

ii. Indicate which of the two friends is more likely to be granted the mortgage using the
payment-to-income ratio as a criterion and why?
PTI for Sean = GHC 65, 732.3/ GHC 105, 000 = 62.62%
PTI for Paul = GHC 35, 530.97/ GHC 55, 000 = 64.6%

Table A: Mortgage and Personal Details of Sean and Paul

Mortgage Mortgage Monthly Monthly Loan Value Mortgage Down Years
Applicants Value Mortgage Income Rate Payment
Payment
Sean GHC 800, 000 GHC 65, 732.3 GHC 105, GHC 740, 8% GHC 60, 000 30
000 000

Paul GHC 600, 000 GHC 35, GHC 55, 000 GHC 400, 8% GHC 200, 000 30
530.97 000