2. The Smiths purchase a $600,000 house and must sell their old home in order to

Question

2. The Smiths purchase a $600,000 house and must sell their old home in order to make a 20 percent down payment plus closing costs of $7,000 on the new house. Currently, they have a mortgage balance of $100,000 on their old home, which has been appraised at $300,000 They have been pre-approved by the lender to qualify for a $480,000 mortgage in the new home. The lender offers a bridge loan at 10 percent simple interest. The closing date on the new house is February 13, and the Smiths sell their old home on May 15. • How much cash must the Smiths put down on their new house? • How much equity do the Smiths have in their old house? • How much must they borrow if they take a bridge loan? What is the dollar amount of interest paid on the bridge loan?

Explanation / Answer

Details Amt $ Cost of new House               600,000 20% down payment =             120,000 Closing Cost required                   7,000 1 So Cash to be put down for new house = $        127,000 2 Appriased value of old house               300,000 Mortgage balance on old house               100,000 Equity of Old house   $        200,000 3 They need to take bridge loan for the cash payment required = $127,000 4 Interest on Bridge loan =10%pa No of days of loan Feb                         15 days March                         31 days Apr                       30 days May                         15 days Total Days =                       91 days Assuming 360 days year , interest on 91 days = 127000*0.10*91/360= $       3,210.28 So interest on bridge loan =$3,210.28

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