Question

Amanda and Blake have found a house, which owing to a depressed real estate market costs only $201500. They will put $22000 down and finance the remainder with a 30-year mortgage loan from Bank of America at 4.65% (compounded monthly).

a) How much is their monthly loan payment?
b) How much interest will they pay in the second payment?
c) They will also have the following expenses: property taxes of $2100, homeowners' insurance of $1625, and $290 mortgage insurance (in case one of them dies before the loan is repaid, a requirement of the bank). These annual amounts are paid in 12 installments and added to the loan payment. What will Amanda and Blake's full monthly cost be?
d) If they can afford $1200 per month, can Amanda and Blake afford the house.

Answer 1

Amanda and Blake's monthly loan payment is $917.00. Interest paid in the second payment is $6,921.58. Their full monthly cost is $1117.00.

Step-by-step explanation:

To calculate the monthly loan payment, we can use the formula:

PMT = P imes rac{r(1+r)^n}{(1+r)^n - 1}

where:

PMT is the monthly payment,

P is the loan amount,

r is the monthly interest rate, and

n is the number of payments (in months).

Let's calculate:

1. Loan amount (P) = $201,500 - $22,000 (down payment) = $179,500
2. Monthly interest rate (r) = 4.65% / 12 = 0.03875
3. Number of payments (n) = 30 years * 12 months/year = 360
4. Using the formula, PMT = $179,500 imes rac{0.03875(1+0.03875)^{360}}{(1+0.03875)^{360} - 1} = $916.64

Therefore, Amanda and Blake's monthly loan payment is $917.00 (rounded to the nearest cent).

To calculate the interest paid in the second payment, we need to know the remaining balance after the first payment. Let's calculate:

1. Loan amount after the first payment = $179,500 - $916.64 = $178,583.36
2. Interest paid in the second payment = $178,583.36 imes 0.03875 = $6,921.58

Therefore, Amanda and Blake will pay $6,921.58 in interest in the second payment.

To calculate their full monthly cost, we need to add the property taxes, homeowners' insurance, and mortgage insurance to the loan payment. Let's calculate:

1. Total monthly cost = Loan payment + Property taxes/12 + Homeowners' insurance/12 + Mortgage insurance/12
2. Total monthly cost = $916.64 + $2100/12 + $1625/12 + $290/12 = $1116.64

Therefore, Amanda and Blake's full monthly cost is $1117.00 (rounded to the nearest cent).

To determine if they can afford the house with a $1200 monthly budget, we need to compare their full monthly cost to their budget. Let's calculate:

1. If full monthly cost ($1117.00) <= budget ($1200), then they can afford the house.

Therefore, Amanda and Blake can afford the house with a $1200 monthly budget.