A couple wishes to borrow money using the equity in their home for collateral. A
ID: 1225331 • Letter: A
Question
A couple wishes to borrow money using the equity in their home for collateral. A loan company will loan them up to 70% of their equity. They purchased their home 11 years ago for $74,102. The home was financed by paying 15% down and signing a 30-year mortgage at 9.6% on the unpaid balance. Equal monthly payments were made to amortize the loan over the 30-year period. The net market value of the house is now $100,000. After making their 132nd payment, they applied to the loan company for the maximum loan. How much (to the nearest dollar) will they receive?
Explanation / Answer
Answer:
The mortgage amount = 74102*0.9 = 66691.80
PMT = 66691.80*(0.096/12)/(1 - (1+(0.096/12))^180) = 720.20
The outstanding balance after 132 payments
= 66691.80 (1 + (0.096/12))^132 – 720.20 ((1+0.096/12)^132-1)/(0.096/12)
= 190924.94 - 165650.70
= 25274.24
The equity is: 100,000 - 26709.56 = 74,725.76
The maximum loan = 0.7*74,725.76
= $52,307
Therefore, after making their 132nd payment they will receive: $52,307
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