Two friends want to purchase a new house and can afford to make monthly payments of $1000.00. They go to the bank and obtain a mortgage for $195 000.00 compounded semi-annually and amortized over 25 years.
They wonder if it would be wise to find a less expensive house to reduce the amortization period to 20 years. What would be the maximum mortgage they could afford assuming that only the amortization period changes?