Question

You have just signed a contract to purchase your dream house. The price is $140,000 and you have applied for a $110,000, 30-year, 4.5 percent loan. Annual property taxes are expected to be $2,100. Hazard insurance will cost $600 per year. Your car payment is $450, with 36 months left. Your monthly gross income is $4,000. Calculate the total obligations (back-end) ratio.

Answer 1

obligation ratio: 0.3081 = 30.81%

Step-by-step explanation:

Total oblication will include all the payment:

property taxes: 2,100 / 12 = 175

insurance: 600 / 12 = 50

car monthly payment: 450

mortage monthly payment: 557.35

Total obligation: 1,232.35

mortgage monthly payment:

`PV / (1-(1+r)^(-time) )/(rate) = C\\`

PV 110,000

time 360 (30 years x 12 months per year)

rate 0.00375 (0.045 divide into 12 months to get the monthly rate)

`110000 / (1-(1+0.00375)^(-360) )/(0.00375) = C\\`

C 557.354

total obligation ratio:

1,32.35 / 4,000 = 0.3081