Jay and Nicky have found the house they want and plan to take out a 30 year, 3.7

Question

Jay and Nicky have found the house they want and plan to take out a 30 year, 3.75% mortgage.

Jay's income is $45,000 and Nicky's income is $49,000.

If they feel they can afford a monthly PITI mortgage payment of $1,700, insurance is $712 per year and real estate taxes are $2,700 per year, what is the maximum they can borrow? (see Exhibit 7-7).

Exhibit 7-7 Mortgage Payment Factors (principal and interest factors per $1,000 of loan amount) 30 Years $4.22 4.49 4.77 5.07 5.37 5.68 6.00 6.32 6.65 6.99 7.34 25 Years $4.74 5.01 5.28 5.56 5.85 6.14 6.44 6.67 7.06 7.39 7.72 20 Years $5.55 5.80 6.06 6.33 6.60 6.88 7.16 7.45 7.75 8.06 8.36 15 Years $6.91 7.15 7.40 7.65 7.91 8.17 8.43 8.71 8.98 9.27 9.56 Term Rate 3.0% 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0

Explanation / Answer

Maximum Annual PITI=1700*12=20400

Given, Insurance=712

Real estate taxes=2700

So Maximum Annual Loan Mortgage Payment=20400-712-2700=16988

Hence, Maximum monthly loan mortgage payment combined of Jay and Nicky=16988/12=1415.667

GIven, for 3.5% for 30 years ,loan amount factor is 4.49

GIven, for 4% for 30 years ,loan amount factor is 4.77

hence, for 3.75% for 30 years ,loan amount factor is (4.49+4.77)/2=4.63

Hence, if payment is 4.63 loan is 1000

So, if payment is 1415.67, loan will be 1000*1415.67/4.63=305760.3

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