Question

Peter wants to buy a duplex with a purchase price of $227,000. Peter can afford a 15% down payment. Peter earns $2,500 a month and wants to spend no more than 10% of his income on his mortgage payment. Peter is going to rent out the other half of the duplex. He thinks that if he charges $900 a month in rent this will cover the remainder of his mortgage payment. Given that Peter has a 30 year mortgage with a fixed rate of 6.5%, how should Peter adjust how much he charges for rent of the other half of the duplex?

Answer 1

To calculate how much Peter should charge for rent, we need to first determine his mortgage payment and the remaining payment he needs to cover with rent. Peter should adjust the rent he charges to at least the MinimumRent amount to cover the remainder of his mortgage payment.

Step-by-step explanation:

To calculate how much Peter should charge for rent, we need to first determine his mortgage payment and the remaining payment he needs to cover with rent.

1. Calculate Peter's mortgage payment using the formula: P = A / (1 - (1 + r)^(-n)), where P is the monthly mortgage payment, A is the loan amount, r is the monthly interest rate, and n is the number of monthly payments (30 years = 360 months).
2. Calculate Peter's maximum affordable mortgage payment using the 10% income rule: MaxMonthlyPayment = Income * 10%.
3. Determine the remaining payment Peter needs to cover with rent: RemainingPayment = MortgagePayment - MaxMonthlyPayment.
4. Calculate the minimum rent Peter should charge by dividing the RemainingPayment by the 900 that Peter initially thought he could charge: MinimumRent = RemainingPayment / 900.

Therefore, Peter should adjust the rent he charges to at least the MinimumRent amount to cover the remainder of his mortgage payment.