Fight Finance

Courses  Tags  Random  All  Recent  Scores

Scores
keithphw$6,011.61
Jade$1,815.80
Chu$789.98
royal ne...$750.00
Leehy$713.33
Visitor$650.00
JennyLI$625.61
Visitor$590.00
Visitor$550.00
Visitor$550.00
ZOE HY$540.00
Visitor$540.00
Visitor$500.00
Yizhou$489.18
Visitor$464.70
Visitor$460.00
Jasper.sun$460.00
Visitor$460.00
Visitor$442.43
niki,zhang$440.00
 

Question 459  interest only loan, inflation

In Australia in the 1980's, inflation was around 8% pa, and residential mortgage loan interest rates were around 14%.

In 2013, inflation was around 2.5% pa, and residential mortgage loan interest rates were around 4.5%.

If a person can afford constant mortgage loan payments of $2,000 per month, how much more can they borrow when interest rates are 4.5% pa compared with 14.0% pa?

Give your answer as a proportional increase over the amount you could borrow when interest rates were high ##(V_\text{high rates})##, so:

###\text{Proportional increase} = \dfrac{V_\text{low rates}-V_\text{high rates}}{V_\text{high rates}} ###

Assume that:

  • Interest rates are expected to be constant over the life of the loan.
  • Loans are interest-only and have a life of 30 years.
  • Mortgage loan payments are made every month in arrears and all interest rates are given as annualised percentage rates (APR's) compounding per month.




Copyright © 2014 Keith Woodward