Question

If work can be done in excel using formulas that would be appreciated:

You can afford a $700 per month mortgage payment. You’ve found a 30-year loan at 5.5% interest. a. How big of a loan can you afford? b. How much total money will you pay the loan company? c. How much of that money is interest?

Answer 1

Question a:

P = Monthly mortgage amount = $700

n = 30*12 = 360 months

r = monthly interest rate = 5.5%/12 = 0.45833333%

Maimum loan amount can be calculated using the below formula

Maximum loan amount = P * [1 - (1+r)^-n] / r

= $700 * [1 - (1+0.45833333%)^-360] / 0.45833333%

= $700 * 0.807224517 / 0.0045833333

= $123,285.2

Therefore, the amount of loan is $123,285.2

Question b:

Total amount paid for the loan = Number of months * monthly loan payment

= 30*12*$700

= $252,000

Therefore, total amount paid for the loan is $252,000

Quesiton c:

Amount of interest over the loan = Total amount of loan - loan amount

= $252,000 - $123,285.2

= $128,714.8

Therefore, amount of interest paid over the loan is $128,714.8