Question

If you can afford to pay $1000 per month, calculate how much you could borrow at 5.125% if you plan to get a 30 year

loan.

Answer 1

The amount that can be borrowed with a monthly payment of $1,000 at 5.125% for 30 years is $183,659.123

The steps that used to find the amount that can be borrowed can be presented as follows;

The monthly payment on a loan formula indicates that we get;

`P= (r\cdot (PV))/(1-(1+r)^(-n))`

Where

r = The monthly interest rate

P = The monthly payment on the loan

PV = The present value, or amount borrowed

n = The number of periods of payment
Therefore, we get;

r = 5.125%/12

P = $1,000

n = 30 × 12

30 × 12 = 360

`PV= (P* (1-(1+r)^(-n)))/(r)`

`PV= (1000* (1-(1+(0.05125)/(12) )^(-360)))/((0.05125)/(12) )`

`(1000* (1-(1+(0.05125)/(12) )^(-360)))/((0.05125)/(12) ) \approx 183,659.123`

The amount that can be borrowed is about $183,659.123