Planit:Riba-Free Mortgage Exercise Answer Key

Question One:

You purchased a house seven years ago with a value of RM 200,000. You signed a contract with your bank to repay them a total amount of RM 250,000 over 20 years. You are making monthly, equal payments.

What is the current balance of the mortgage? $___________

Answer:

Select Present and Future Values from the Calculators drop down on the home page.

1. Click on the radio button to indicate Simple Annuity
2. Leave the Periodic Payment blank, since this is what we are calculating for.
3. Select the Frequency as monthly, since he wants to make monthly payments.
4. In the Number of Payments field enter 240: 12 payments/year times 20 years of payments
5. In the Interest/year field enter 0%
6. The payments are not going to be indexed, since the agreement would then have to be re-drawn, so the Index Payments per Year can be left at 0%
7. Set the Future Value to $250,000: the amount that the client needs to pay back.
8. Click on the button next to Periodic Payment.

The result should be $1,041.67

1. To find the balance of the mortgage, first click the Schedule button.
2. Scroll down to Period number 84: 12 months/year multiplied by seven years (this will be the period for the current month).
3. Note the number for this period under Ending. This is the amount that your client will have already paid to the bank after the first seven years.
4. To find the balance, calculate the total value of the amount owed to the bank – the amount already paid after seven years. ($250,000 - $87,500.28 = 162,499.72)

The balance of the mortgage after ten years would be RM 162,499.72.