Question

Suppose your gross monthly income is $5,700 and your current monthly payments are $575. If the bank will allow you to pay up to 36% of gross monthly income (less current monthly payments) for a monthly house payment, what is the maximum loan you can obtain if the rate for a 30-year mortgage is 4.65%? (Round your answer to the nearest cent.)

Answer 1

In Amortisation, monthly amortisation amounts can be calculated by the formula: P*(1+r)^n*r/(((1+r)^n)-1). Where P is loan amount, r is interest rate per period and n is number of periods.

Given gross monthly amount is 5700. Current monthly payments are 575. Remaining amount is 5700-575= 5125. Bank will allow 36% of 5125= 1845. r is 4.65%/12= 0.3875%

So, taking 1845 as monthly house payment and substituting in the formula, we have 1845= P*(1.003875)^360*(1.003875)/((1.003875)^360)-1. On solving, we get P= 357810.

So, Maximum loan we can obtain is $357810.