The Turners have purchased a house for $180,000. They made an initial down payme

Question

The Turners have purchased a house for $180,000. They made an initial down payment of $10,000 and secured a mortgage with interest charged at the rate of 8%/year compounded monthly on the unpaid balance. The loan is to be amortized over 30 yr. (Round your answers to the nearest cent.)

(a) What monthly payment will the Turners be required to make?
$  

(b) How much total interest will they pay on the loan?
$  

(c) What will be their equity after 10 years?
$  

(d) What will be their equity after 22 years?
$  

Explanation / Answer

Cost of the House $ 180000 Initial Down Payment $ 10000 Loan Amount = 180000-10000 $ 170000 Interest Rate = 8 % Per month Interest Rate = 0.6667 % Tenure of the Loan = 30 years or 360 Months Using PMT formula in Excel EMI =PMT(rate,nper,pv,(fv),(type)) EMI = PMT(0.006667,360,170000,0,0) EMI = 1247.45 a The Monthly Payment will be $ 1247.45 b Total interest to be paid on the loan (Monthly Payment * Months ) - Principal Payament = (1247.45 * 360) - 170000 = $ 279082 c Equity after 10 years PV=PV (n,i,PMT,FV) n after 10 years = 360 Monts -( 10 years *12 Months)                                 = 240 months I = 0.6667 % Pmt = $ 1247.45 FV = 0 =PV(0.006667,240,1247.45,0,0) PV = 149133.56 Still $ 149133.56 is Outstanding. Equity means total amount paid towards Principal for ouse Purchase. Equity = $ (170000 - 149133.56) + 10000               = $ 30866.44 d Equity after 22 years n after 10 years = 360 Monts -( 22 years *12 Months)                                 = 96 months I = 0.6667 % Pmt = $ 1247.45 FV = 0 = PV(0.006667,96,1247.45,0,0) = $ 88240.81 Equity = $ (170000 - 88240.81) + 10000               = $ 91759.19

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