## Saturday, May 7, 2011

### Problems involving interest, monthly payments and down payments.

a) A house is selling for \$300,000. You have \$20,000 to put down, and the rest you will be financing on a 30 year loan at 6.25%. What is your monthly payment, rounded to the nearest penny?

b) A house is selling for \$300,000. You have \$20,000 to put down, and the rest you will be financing on a 15 year loan at 6.25%. What is your monthly payment, rounded to the nearest penny?

c) You have \$30,000 to put down and you can afford payments of \$1500 a month for mortgage. How expensive a house can you afford to buy on 30 year loan at 6.25% interest?

d) You have \$30,000 to put down and you can afford payments of \$1500 a month for mortgage. How expensive a house can you afford to buy on 15 year loan at 6.25% interest?

Prof. Hubbard said...

a) A house is selling for \$300,000. You have \$20,000 to put down, and the rest you will be financing on a 30 year loan at 6.25%. What is your monthly payment, rounded to the nearest penny?

You are financing \$280,000, so the total will be 280,000*(1+30*.0625) = \$805,000.
\$805,000/(12*30) = \$2236.11, rounded to the nearest penny.

b) A house is selling for \$300,000. You have \$20,000 to put down, and the rest you will be financing on a 15 year loan at 6.25%. What is your monthly payment, rounded to the nearest penny?

You are financing \$280,000, so the total will be 280,000*(1+15*.0625) = \$542,500.
\$542,500/(12*15) = \$3013.89, rounded to the nearest penny.

c) You have \$30,000 to put down and you can afford payments of \$1500 a month for mortgage. How expensive a house can you afford to buy on 30 year loan at 6.25% interest?

You will pay 1500*12*30 = \$540,000 over the 30 year loan.
540000/(1+30*.0625) = \$187,826.09 rounded to the nearest penny.
Add the \$30,000 down and you can afford a house selling for \$217,826.09.

d) You have \$30,000 to put down and you can afford payments of \$1500 a month for mortgage. How expensive a house can you afford to buy on 30 year loan at 6.25% interest?

You will pay 1500*12*15 = \$270,000 over the 15 year loan.
270000/(1+15*.0625) = \$139,354.84 rounded to the nearest penny.
Add the \$30,000 down and you can afford a house selling for \$169,354.84.

Prof. Hubbard said...

Problem d) says "30 year loan" instead of "15 year loan". The answer is correct for the 15 year loan.