Question

Gerry is buying 80 acres of farmland that cost $250,000. He will take out a 20-year loan with a 1.9% annual interest rate, and he can afford a $1,150 monthly payment.What minimum down payment must Gerry make to keep his monthly payment at or below $1,150?(Answers are rounded to the nearest 10 dollars.)

Answer 1

To keep his monthly payment at or below $1,150, Gerry must make a minimum down payment that reduces the loan amount to a level resulting in a monthly payment of $1,150 or less.

Step-by-step explanation:

In order to keep his monthly payment at or below $1,150, Gerry must make a down payment that will decrease the loan amount to a level that results in a monthly payment of $1,150 or less.

Let's calculate the maximum loan amount with the given interest rate and payment:

1. Convert the annual interest rate to a monthly interest rate: 1.9% ÷ 12 = 0.00158
2. Calculate the maximum loan amount using the formula: Loan Amount = Monthly Payment ÷ Monthly Interest Rate = $1,150 ÷ 0.00158 = $727,848.10

Therefore, Gerry must make a minimum down payment of $250,000 - $727,848.10 = $-477,848.10. However, this amount doesn't make sense, so we can conclude that Gerry cannot afford to keep his monthly payment at or below $1,150 with the given loan terms.