TITLE: MAKE UP MIND ON APPLYING HOUSING LOAN

Introduction

Annuity is a series of payments made at equal intervals. The payments may be made
weekly, monthly, quarterly, yearly or at any other regular interval of time. Annuity can be
classified by the frequency of payment dates. Example of annuity includes house rents, mortgage
payments, instalment payments on automobiles and interest payments on money invested.

Present value (PV) is the current value of a future sum of money or stream of cash
flows given a specified rate of return. Future cash flows are discounted at the discount rate, and
the higher the discount rate, the lower the present value of the future cash flows. The present
value of an annuity is the value of all the payments received over a period of time in the future in
today’s dollars, at a certain discount rate. One way to think of the present value of an annuity is a
car loan. The initial loan is the present value.

Home loan is a sum of money borrowed from a financial institution or bank to purchase a
house. Home loans consist of an adjustable or fixed interest rate and payment terms. Normally,
people would pay down payment when they borrowed home loan. Down payment is an initial
up-front partial payment for the purchase of expensive items/services such as a car or a house. It
is usually paid in cash or equivalent at the time of finalizing the transaction. A loan of some sort
is then required to finance the remainder of the payment.

Compound interest is the interest on a loan or deposit calculated based on both the
initial principal and the accumulated interest from previous periods. Monthly Repayment means
the monthly instalments of principal and interest or, in respect of endowment loans and interest
only loans, the monthly instalments of interest payable by the Applicant as specified in the Letter
of Approval in each case as varied or recalculated from time to time. On the other hand, monthly
repayment can be said as the principal and interest payments pay by every month until the
balance of the loan is zero.
 In this coursework, the purpose of this assignment is to apply the concept of annuity in
making financial decision based on given constraints. By considering to buy a house and to take
up a housing loan with a repayment duration of 30 years or less. Monthly repayment amount
needs to be calculated based on price of house, amount of down payment, amount of loan and
period of loan.