1,500 b) S 5,700 c) $15,000 d) $28,500 32) You want to buy your dream home, agai

Question

1,500 b) S 5,700 c) $15,000 d) $28,500 32) You want to buy your dream home, again. Your salary is 56,000 per year. The ban for a thirty-year (30) loan, your k has approved you mortgage at a rate of 4.25 percent per year. In order to be approved for the above mortgage payments will have to equal 32% of your gross monthly income. You need to have a down-payment towards the purchase price of the home. Caleulate the following: o) a) How much is the Monthly Mortgage Payment? b) How much of a mortgage loan will the bank lend you? c) What is the total cost of the house you can buy? How much is the required Down Payment? Page 5 of 9

Explanation / Answer

A How much is the monthly mortgage payment?

Ans. Monthly mortgage payment = monthly salary x 32% => 56000 x 32%/12 = $1,493.33

B How much of a mortgage loan will the bank lend you?

Ans. Using the present value of annuity formula,

PVA = A x (1-(1+r)^-n)/r

PVA = 1493.33 x (1-(1+4.25%/12)^-360)/(4.25%/12)

PVA = 1493.33 x 203.2769 => $303,559.44

So the bank will lend you $303,559.44

C What is the total cost of the house you can buy?

Ans. Since bank loan is 80% and down payment is 20%, total cost will be

$303,559.44/80% = $379,449.31

D How much is the required down payment?

Ans. Down payment = $379,449.31 x 20% = $75,889.86

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