You are planning to buy a new house. You currently have $40,000 and your bank to

Question

You are planning to buy a new house. You currently have $40,000 and your bank told you that you would need a 20% down payment plus an additional 5% in closing costs. If the house that you want to buy costs $350,000 and you can make a 6% annual return on your investment, determine the following in Microsoft Excel:

When will you have enough money for the down payment and closing costs, assuming that the $20,000 is the only investment that you make?

You decide that you want to buy the house in 2 years. How much do you need to save every month to achieve your goal?

Assume that three years later the house still has the same price and that you can get a 15-year mortgage from your bank at a fixed rate of 3.5%:

What are the monthly payments on the loan?

How much will you have to pay the bank each year?

What is the total interest over the term of the loan?

How much do you pay on interest and principal the first monthly payment?

How much in the 50th month?

Explanation / Answer

Answer for A Answer for B Answer for C Cost of House $350,000 If we need the amount $87500 in 2 years If after 3 years with 6% returns we have deposits 23820.32 Down Payment 20% then we need to invest $20000 with "r" rate of return We will have mortgage for amount 63679.68 Closing Cost 5% r 1.091650066 We can have 63679.68 raised from mortgage for 15 years with 3.5% Down Payment+Closing Cost in dollar terms 87500 that menas he has to invest with 109.17% returns then EMI on gross would be ($455.23) Initial Investment 20000 to Pay each year -5462.818976 Rate of return 6% If we have $20000 to invest with 6% return then we need to wait for x years to have $87500 therfore we have 20000*(1+0.06)^x equals to 87500 x 25.32922904 Therefore we need 25 years 4 months

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