Question

Problem 4 and 5-8 House Appreciation and Mortgage Payments

Say that you purchase a house for $246,000 by getting a mortgage for $215,000 and paying a down payment of $31,000. If you get a 15-year mortgage with an interest rate of 6 percent, what are the monthly payments? (Round your final answer to 2 decimal places.)

What would the loan balance be in five years? (Use a payment value rounded to 2 decimal places. Round your final answer to 2 decimal places.)

If the house appreciates at 3 percent per year, what will be the value of the house in five years? (Round your final answer to 2 decimal places.)

How much of this value is your equity? (Use intermediate values rounded to 2 decimal places. Round your final answer to 2 decimal places.)

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

215000= Cash Flow*((1-(1+ 6/1200)^(-15*12))/(6/1200))

Cash Flow = 1814.29= monthly payments

Loan balance in 5 years

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 1814.29*((1-(1+ 6/1200)^(-10*12))/(6/1200))

PV = 163419.37 = loan balance

Value of house in 5 years

Future value = present value*(1+ rate)^time

Future value = 246000*(1+0.03)^5

Future value = 285181.42

Equity value = house value - loan balance = 285181.42-163419.37=121762.05