Question

Assume three housing prices: $120,000, and $180,000. Further assume down payments of 5 percent, and 25 percent. With an interest rate of 10 percent and a mortgage term of 30 years, calculate the dollar amount of the down payment and the monthly payments required for each house at each down payment level. The mortgage tables in chapter 7 will enable you to crunch these numbers. The purpose of this exercise is to help you to work these formulas, a skill that will come in handy when you apply for a home loan.

Answer 1

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Answer 2

For the first house priced at $120,000:

- 5% down payment:

Down payment = $120,000 * 0.05 = $6,000

- 25% down payment:

Down payment = $120,000 * 0.25 = $30,000

For the second house priced at $160,000:

- 5% down payment:

Down payment = $160,000 * 0.05 = $8,000

- 25% down payment:

Down payment = $160,000 * 0.25 = $40,000

For the third house priced at $180,000:

- 5% down payment:

Down payment = $180,000 * 0.05 = $9,000

- 25% down payment:

Down payment = $180,000 * 0.25 = $45,000

Now, to calculate the monthly payments required for each house, we can use the mortgage tables or mortgage formula.

For the interest rate of 10% and a mortgage term of 30 years, using the mortgage tables, multiply the loan amount (housing price - down payment) by the appropriate factor to determine the monthly payment.

For the first house priced at $120,000:

- 5% down payment:

Loan amount = $120,000 - $6,000 = $114,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $114,000 * 7.89 = $899,460

- 25% down payment:

Loan amount = $120,000 - $30,000 = $90,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $90,000 * 7.89 = $710,100

For the second house priced at $160,000:

- 5% down payment:

Loan amount = $160,000 - $8,000 = $152,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $152,000 * 7.89 = $1,199,280

- 25% down payment:

Loan amount = $160,000 - $40,000 = $120,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $120,000 * 7.89 = $947,800

For the third house priced at $180,000:

- 5% down payment:

Loan amount = $180,000 - $9,000 = $171,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $171,000 * 7.89 = $1,348,190

- 25% down payment:

Loan amount = $180,000 - $45,000 = $135,000

Using the mortgage tables, the factor for a 30-year loan at 10% interest rate is 7.89.

Monthly payment = $135,000 * 7.89 = $1,065,150