You want to buy a house that costs $270,000. You have $27,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $243,000. However, the realtor persuades the seller to take a $243,000 mortgage (called a seller take-back mortgage) at a rate of 6%, provided the loan is paid off in full in 3 years. You expect to inherit $270,000 in 3 years, but right now all you have is $27,000, and you can afford to make payments of no more than $21,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) What would the loan balance be at the end of Year 3? Do not
round intermediate calculations. Round your answer to the nearest
cent. What would the balloon payment be? Do not round intermediate
calculations. Round your answer to the nearest cent.
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1.
What would the loan balance be at the end of Year 3?
=FV(6%,3,21000,-243000)
=222561.2880
What would the balloon payment be?
=222561.2880
2.
If the loan was amortized over 3 years, how large would each annual
payment be?
=PMT(6%,3,-243000)
=90908.6845
Could you afford those payments?
No, the calculated payment is greater than the affordable
payment.
3.
If the loan was amortized over 30 years, what would each payment
be?
=PMT(6%,30,-243000)
=17653.6855
Could you afford those payments?
Yes, the calculated payment is less than the affordable
payment.
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