Practice Exercise: Mortgages, Loans, and Repayments
Exactly ten years ago, you purchased a $150,000 investment property. The terms of the loan were $15,000 down with the remainder to be repaid in monthly instalments over the next 25 years. The interest rate is 8.4% p.a. fixed for the life of the loan and interest compounds monthly. Since interest paid on the loan is an allowable deduction for tax purposes, you need to figure out how much interest you paid to the bank over the last year. Also, you have some surplus cash at the moment and would like to know how much you would save on each monthly repayment if you made an extra payment of $20,000 now and kept the term of the loan the same.
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