Question

Elon and obama have a mortgage balance of $95,000 on their home, with monthly payments of $850 (principal, interest, taxes, and insurance, or piti). they have an automobile loan balance of $5,000, with monthly payments of $250. in addition, they have a credit card balance of $2,000, on which they pay $225 each month. their net income for the past year was $35,000. their gross income was $48,000. are elon and oba using excessive amounts of debt?

a) no, because monthly house payments (piti) are less than 28% of gross income, and total monthly debt payments are only 33% of gross income.
b) yes, because total monthly debt payments are more than 28% of gross income.
c) no, because monthly house payments (piti) are only 38% of net income, and total monthly debt payments are only 33% of gross income.
d) yes, because monthly house payments (piti) are 28% of net income

Answer 1

Elon and Obama are not using excessive amounts of debt because their monthly debt payments are significantly lower than 28% of their gross income.

Step-by-step explanation:

Elon and Obama have a mortgage balance of $95,000 on their home with monthly payments of $850 (principal, interest, taxes, and insurance, or PITI). They also have an automobile loan balance of $5,000 with monthly payments of $250, and a credit card balance of $2,000 with a monthly payment of $225.

To determine if they are using excessive amounts of debt, we need to compare their monthly debt payments to their gross income. Their net income for the past year was $35,000, which is not relevant for this assessment. However, their gross income was $48,000.

The monthly PITI payment is $850. The total monthly debt payments (including PITI, automobile loan, and credit card) are $850 + $250 + $225 = $1,325.

To calculate the percentage of their gross income that goes towards monthly debt payments, we divide the total monthly debt payments by the gross income and multiply by 100: ($1,325 / $48,000) * 100 = 2.77%.

This means their monthly debt payments represent only 2.77% of their gross income, which is significantly lower than 28%. Therefore, Elon and Obama are not using excessive amounts of debt.