Question

1.)

You want to buy a house in Hermosa Beach CA, but you can only afford to make monthly payments of $7,100. The interest rate on mortgages right now is 4.25% p.a. with monthly compounding (APR), fixed for 30 years, with monthly payments. You have $155,000 saved to use as a downpayment. What is the most that you can afford to pay for a house (ignoring closing costs, property taxes, etc..)?

Answer: $1,598,265.76

2.)

Under the same assumptions described in #1 above, imagine that your desired house actually costs $1,899,000. Your bank is prepared to offer you a mortgage with the monthly payment that you can afford, but this loan will have a balloon payment due after 30 years (since your monthly mortgage payments will not fully pay off the principal balance of the loan). How big will this balloon payment be (what you still owe at the end of 30 years)?

Note: I just need help on the second question, I was able to solve the first portion myself.

Answer 1

Amount of the balloon payment =

$1,073,816.56

Workings

Cost of house	1899000
Less: Down payment	155000
Mortgage amount	1744000
Monthly payments	7100
Term in years	30
Amount remaining after last payment	$1,073,816.56