Question

You can afford a $1250 per month mortgage payment. You have found a 30 year loan...

You can afford a $1250 per month mortgage payment. You have found a 30 year loan at 7% interest.
How big of a loan can you afford?
How much total money will you pay the loan company?
How much of that money is interest?

Homework Answers

Answer #1
1)
Loan Value $ 187,884.46
Loan Value is the present value of monthly payment.
Loan value = Monthly Payment * Present Value of annuity of 1
= $       1,250.00 * 150.3075679
= $ 187,884.46
Working:
Present Value of annuity of 1 = (1-(1+i)^-n)/i Where,
= 150.3075679 i 0.005833
n 360
2)
Total money paid for loan = Monthly Payment * Number of months
= $       1,250.00 * 360
= $ 450,000.00
3)
Interest = Total repaid - Loan amount
= $ 450,000.00 - $ 187,884.46
= $ 262,115.54
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