A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If mortgage rates are 6.25% for a 30-year fixed-rate mortgage, how large can his mortgage be? If his parents give him $20,000 for a down payment, what is the most he can pay on a house with a 15-year mortgage if the interest rate is 5.50%?
Answer:
| Calculation of Net Monthly Payment | ||||
| Gross Monthly Payment | $ 1,800.00 | |||
| Less: | Property Tax (3000/12) | $ 250.00 | ||
| Less: | Insurance | $ 110.00 | ||
| Net Monthly Payment | $ 1,440.00 | |||
| Calculation of Present Value of mortgage | ||||
| Net Monthly Payment | $ 1,440.00 | |||
| Monthly Interest Rate (6.25%/12) | 0.52% | |||
| Period =12*30= | 360.00 | |||
| Present Value of mortgage | $233,873.60 | |||
| Calculation of Maximum amount he can pay on a house | ||||
| Net Monthly Payment | $ 1,440.00 | |||
| Monthly Interest Rate (5.5%/12) | 0.46% | |||
| Period =12*15= | 180.00 | |||
| Present Value of mortgage | $176,236.59 | |||
| Add | Down Payment | $ 20,000.00 | ||
| Maximum Amount He can pay | $196,236.59 |
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