Question

Donna is thinking about buying a house that costs $100,000. If she puts down $20,000 and is able to get a 5 percent mortgage, she wants an estimate of her total monthly housing expenses. The average annual cost for owning a house, beyond the 5% cost of mortgage interest, is 4. 09 percent of the value of the house. Not including the opportunity cost of the down payment, amortization on the loan or any tax benefits from home ownership, what will be her monthly cost the first month?.

Answer 1

Donna's estimated total monthly housing cost for the first month is $674.16. This includes the 5% mortgage interest on the remaining $80,000 after her $20,000 down payment and the average annual cost for owning a house at 4.09% of the house's value.

Step-by-step explanation:

To calculate Donna's estimated total monthly housing expenses for the first month after buying a house at a cost of $100,000, we will need to calculate both the mortgage interest payment and the additional annual costs of owning a home.

Donna is making a $20,000 down payment on the home, which means she will need to take out a mortgage for the remaining $80,000. At a 5 percent mortgage interest rate, the monthly interest payment can be calculated as follows:

1. Calculate the annual interest: $80,000 * 0.05 = $4,000.
2. Divide by 12 to find the monthly interest payment: $4,000 / 12 = $333.33.

Beyond the mortgage interest, the other annual costs for owning the house are 4.09 percent of the house value, which can be estimated as follows:

1. Calculate the annual additional costs: $100,000 * 0.0409 = $4,090.
2. Divide by 12 to find the monthly additional costs: $4,090 / 12 = $340.83.

Adding both the monthly interest payment and monthly additional costs gives us the total monthly cost:

Total monthly cost = $333.33 (monthly interest) + $340.83 (monthly additional costs) = $674.16.

This is Donna's estimated total housing cost for the first month, not including amortization, opportunity cost of down payment, or potential tax benefits.