Question

You just bought a rent house for $200,000, with $40,000 down and the balance in the...

You just bought a rent house for $200,000, with $40,000 down and the balance in the form of a 15-year amortization mortgage at a fixed rate of 4.0% and monthly payments. Your principal, interest, property tax, and insurance, plus all costs of maintaining the property, are covered by your rent.

a) How much are your monthly mortgage payments?

b) The University grows, and prices appreciate at the rate of 6% per year. What will the value of the house be in 6 years? What will the outstanding principal of the debt be (assume no extra payments)? What will the value of the equity be?

c) Using CAGR, what is your rate of return on your equity? There was a wealth transfer from lender to borrower, over the first 6 years of the mortgage? Why? Generalize about how wealth transfers can occur between borrowers and lenders.

d) What will be the value of the house be in 15 years? How much will your equity be worth? How much will be your debt?

e) Describe the theories of the term structure of interest rates that explain a normal upward sloping, flat, and downward sloping yield curve. Which type of curve is often (but not always) followed by an economic downturn and stock market correction/crash?

Homework Answers

Answer #1

House Price = $ 200000, Down Payment = $ 40000, Tenure = 15 years or 180 months, Interest Rate = 4 % per annum or 0.33 % per month,

Let the monthly repayments be $ K

Loan Amount = 200000 - 40000 = $ 160000

160000 = K x (1/0.0033) x [1-{1/(1.0033)^(180)}]

K = $ 1180.29

(b)

(i) Price Appreciation Rate = 6% per annum

Price after 6 years = 200000 x (1.06)^(6) = $ 283703.82

(ii) The outstanding principle will be equal to the sum of the present values of remaining monthly repayments at the end of Year 6.

Principle Outstanding = 1180.29 x (1/0.0033) x [1-{1/(1.0033)^(108)}] = $ 107083.25

(iii) Equity Value = House Price - Principle Outstanding = 283703.82 - 107083.25 = $ 176620.57

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You just found the house of your dreams. The price of the house is $200,000. You...
You just found the house of your dreams. The price of the house is $200,000. You have been qualified to get a mortgage loan with AAA Bank. The mortgage loan is for 30 years at an annual interest rate of 12%z Part (A): How much are your monthly payments for the loan? Part (B): What is the balance of the mortgage loan after 3 years of payments? Part (C): After 3 years of payments, you want to add extra money...
. A couple bought a house for $200,000 with 5% down and a 30 year mortgage...
. A couple bought a house for $200,000 with 5% down and a 30 year mortgage with an interest rate of 6% a year. What were the monthly payments? 5 points How much interest will be paid on the loan over the first 5 years of the loan? 5 points How much interest will be paid on the loan over the last 5 years of the loan? 5 points Why the difference in the two amounts? 5 points The house...
2.    Suppose you bought a house for $200,000 financing it with a $40,000 down payment of...
2.    Suppose you bought a house for $200,000 financing it with a $40,000 down payment of your own funds and a $200,000 mortgage loan from a bank. (12 points)           a.    Assume that the market value of your house has now risen to $230,000. Ignoring interest and other costs, and assuming the loan amount is still $160,000, calculate your rate of return on your asset (ROA) and your rate of return on equity (ROE).        b.    Now assume that, instead...
You bought a house for 150,000.  The bank required a 20% down payment and gave you a...
You bought a house for 150,000.  The bank required a 20% down payment and gave you a 30-year mortgage loan for the remainder.  Assume an annual interest rate of 3.5% and a monthly repayment schedule.  What is your monthly payment?  After 18 years of payments, how much do you still owe?
22. The Howe family recently bought a house. The house has a 15-year, $228,153.00 mortgage with...
22. The Howe family recently bought a house. The house has a 15-year, $228,153.00 mortgage with monthly payments and a nominal interest rate of 6%. What is the total dollar amount of principal the family will pay during the first 5 years of their mortgage? (Assume all payments are made at the end of the month)
You buy a $200,000 house and have a 20% down payment (hence the mortgage is for...
You buy a $200,000 house and have a 20% down payment (hence the mortgage is for $160,000). A 15 year mortgage has a rate of 3.5% and 0 points. The monthly mortgage payment is $1,143.81. How much (give the dollar amount) of the first month’s mortgage payment pays off principal on the mortgage? To answer, first compute how much of the first month’s payment is used to pay interest. Then, the remainder of the mortgage payment is used to pay...
You buy a $200,000 house and have a 20% down payment (hence the mortgage is for...
You buy a $200,000 house and have a 20% down payment (hence the mortgage is for $160,000). A 15 year mortgage has a rate of 3.5% and 0 points. The monthly mortgage payment is $1,143.8 How much (give the dollar amount) of the first month’s mortgage payment pays off principal on the mortgage? To answer, first compute how much of the first month’s payment is used to pay interest. Then, the remainder of the mortgage payment is used to pay...
The Turners have purchased a house for $170,000. They made an initial down payment of $40,000...
The Turners have purchased a house for $170,000. They made an initial down payment of $40,000 and secured a mortgage with interest charged at the rate of 10%/year compounded monthly on the unpaid balance. The loan is to be amortized over 30 yr. (Round your answers to the nearest cent.) (a) What monthly payment will the Turners be required to make? (b) How much total interest will they pay on the loan? (c) What will be their equity after 10...
You purchased a new house for $200,000 and financed the entire purchase with a $200,000 mortgage,...
You purchased a new house for $200,000 and financed the entire purchase with a $200,000 mortgage, payable monthly over 30 years at a yearly rate of 4.5%. How much do you owe on this house today after making 4 years of monthly payments? a. $188,277.00 b. $ 44,439.65 c. $173,333.33 d. $186,177.19 e. $ 48,827.09
Queenie just bought a house that cost $1,600,000. She has saved up $200,000 for the closing...
Queenie just bought a house that cost $1,600,000. She has saved up $200,000 for the closing costs--such as legal fees—and the down payment. When she approaches the local bank, she was quoted the rate for a two-year mortgage at 4% (APR, semi-annual compounding), 25 years amortization. But there is one problem; she was told that her income satisfied the bank’s GDS and TDS requirements, but the bank can lend only up to 75% of the purchase price of the house...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • c = 100 + 0.8 (y - t) i = 500 - 50r g = 400...
    asked 4 minutes ago
  • When we observe two charged balloons dangling from thin thread, they can repel each other. We...
    asked 22 minutes ago
  • I study management information systems in my fourth year, but I do not know anything about...
    asked 22 minutes ago
  • What features of the environment are people “wired” to detect? Why? Would it be adaptive for...
    asked 23 minutes ago
  • Graduates of fashion marketing group men 8 women 20 have chosen work in France, probability of...
    asked 34 minutes ago
  • Despite guidelines regulating eligibility for special education services, today’s special education classrooms continue to be over   populated...
    asked 56 minutes ago
  • A. Find the sum 3+8+13+...+28 B.  Find the first term and the common difference of the arithmetic...
    asked 59 minutes ago
  • Explain why in a multiplier model a rise in household wealth relative to target will ceteris...
    asked 1 hour ago
  • What political and economic roles have Japan and the United States played in Southeast Asia in...
    asked 1 hour ago
  • What does the function split do? Explain with an example. ​ ​ def split(L, first): return...
    asked 1 hour ago
  • Code a simple Editor class with 2 constructors (one default, one with a string for a...
    asked 1 hour ago
  • Using a greedy algorithm solve the following instance of Interval Scheduling {(2,12),(1,7),(3,5),(8,10),(7,14),(9,16),(10,14),(12,13),(17,22),(13,14),(15,20),(14,18),(20,30),(22,25),(26,27),(25,29),(24,31)}
    asked 1 hour ago