Humber/Ontario Real Estate Course 4 Exam Practice

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If an entrepreneur arranges semi-monthly payments for a $265,000 mortgage at 6.75% with a 15-year amortization, and the payment factor is 4.392721, what will the payments be?

$582.64
$745.31
$1,164.07
$2,331.37

The correct answer is: $1,164.07

To determine the amount of semi-monthly payments for the mortgage, the payment factor is a crucial element in the calculation. The payment factor represents the amount that must be paid for every $1,000 of the mortgage balance, and it allows for straightforward calculations when determining total payment amounts. In this case, the mortgage amount is $265,000, and the payment factor provided is 4.392721. To find the total semi-monthly payment, you first convert the mortgage amount into thousands: $265,000 / 1,000 = 265. Then, you multiply the payment factor by the number of thousands in the mortgage to find the total payment per semi-monthly period: 265 (thousands) * 4.392721 (payment factor) = $1,164.07. This calculation results in a semi-monthly payment of $1,164.07, which is consistent with the provided answer. Understanding this process highlights the importance of using payment factors in mortgage calculations, making it easier to determine the payments required over the life of the loan based on the specific terms, such as interest rate and amortization period.