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RBC: Cash Back Mortgage

RBC: Cash Back Mortgage. Available on a Variety of Terms Cashback is available on fixed rate mortgages with terms of 4, 5 or 7 years. And the amount of money you receive is based on the size and term of your mortgage - up to 7% of its value.

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RBC: Cash Back Mortgage

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  1. RBC: Cash Back Mortgage Available on a Variety of Terms Cashback is available on fixed rate mortgages with terms of 4, 5 or 7 years. And the amount of money you receive is based on the size and term of your mortgage - up to 7% of its value. Source: http://www.rbcroyalbank.com/RBC:RCn5mo71A8QAAypuvLU/products/mortgages/cashback.html

  2. Cash back Mortgage $100,000 5 year term 25 year amortization 1% cash back on drawdown date 7% APR Conventional Mortgage $100,000 5 year term 25 year amortization 0 cash back on drawdown date 6% APR RBC: Cash Back Mortgage Assumptions

  3. RBC: Cash Back Mortgage • To analyze this, we first calculate the correct monthly interest rate for each type (cash back & conventional) All calculations are shown using keystrokes for the HP 10B calculator

  4. RBC: Cash Back Mortgage Now calculate the monthly payments for each alternative: Cash back Mortgage Conventional Mortgage 1 2nd P/Y (1 Pay/Year) 100,000 PV 0 FV 25 x 12 = N 0.5750 I PMT $700.42 1 2nd P/Y (1 Pay/Year) 100,000 PV 0 FV 25 x 12 = N 0.4939 I PMT $639.81

  5. RBC: Cash Back Mortgage Now calculate the balance outstanding at the end of the five year fixed rate term for each type of mortgage: Cash back Mortgage Conventional Mortgage First calculate the payment, then: 60 Input 2nd Amort = = = $91,044.59 First calculate the payment, then: 60 Input 2nd Amort = = = $89,836.71

  6. RBC: Cash Back Mortgage • We can now calculate the implicit interest rate charged by the bank for the cash back option. • Calculate the difference in monthly payments • Calculate the difference in balance outstanding at the end of the five year fixed term • Calculate the implicit interest rate 1 2nd P/Y (1 Pay/Year) 1,000 PV 1,207.88 +/- FV 60.61 +/- PMT 60 N I -?

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