exactly 7 years and 11 months

The Mandlake family, from Port Elizabeth, has a 20-year home loan now for

exactly 7 years and 11 months. The size of the loan was R2.65 million and

the interest rate was 10.25% p.a. compounded monthly for the past 7 years

and 8 months. Assume that they paid, every month, R500 more than the

minimum required instalment from the start.

1. What is the balance on their home loan now?

2. Determine the interest charged to date.

3. Assume that the required instalment increased precisely 3 months ago,

due to an increase in the interest rate by 100 basis points. If the Mandlake

family kept on paying the same amount as before the interest rate

change, how much more per month are they really paying compared to

the required amount?

4. Assume that the required instalment increased precisely 3 months ago,

due to an increase in the interest rate by 100 basis points. If the Mandlake

family kept on paying the same amount as before the interest rate

change, by when would they have settled their debt? Give the answer as

years and months from now.

5. Mr Mandlake died earlier today due to COVID-19 related

complications. Because Mr Mandlake had life insurance on his home

loan, the bank wrote off the debt owed by Mr Mandlake. How much

would the remainder of the Mandlake family have owed the bank if Mr

Mandlake did not have life insurance on that home loan?

6. Redo Question 5. But assume that the Mandlake family only paid the

minimum amount every month. How much would the remainder of the

Mandlake family have owed the bank if Mr Mandlake did not have life

insurance on that home loan?

7. Is it worthwhile to pay extra per month on your monthly instalment?

Explain. Why are the banks encouraging home loan owners to pay extra

per month?

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