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Math Help - Interest Only Loan

  1. #1
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    Interest Only Loan

    Hey guys, desperately need some assistance with the following, would be much appreciated.

    Interest Only Loan, 10 year term, 7.5%pa comp monthly i, $50,000 principle
    Monthly repayments are $322.92

    I need to calculate what the monthly repayment would be if the interest rate rose by 3% to 10.75%pa at the 5 year mark.

    Am I right to assume discounting?
    Any help would be great, cheers!
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  2. #2
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    Why is that tricky? You need the balance at the 5 year mark. Since you are paying interest only, the balance doesn't change from month to month. All you really need is the ratio of the interest rates.


    322.92*(10.75/7.75) = ??
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  3. #3
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    re

    I have attempted the question again.

    Am I right to find the outstanding principle (19375.20) and then divide that by the s angle (.0089\60) = 46.33 which comes to a monthly payment of $418.17.

    Can anybody confirm this?
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  4. #4
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    You must first explain to me why the Outstanding Principle is not $50,000.

    Iis it, or is it not, an Interest Only Loan?
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  5. #5
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    re

    Shouldn't I account for the fact that interest would have accrued during the period for half of the principle, despite the fact that the principle is paid upon maturity?
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  6. #6
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    I would read the terms of the contract very carefully.
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