Question

1. Rey Mercado has a house valued at $250,000. His mortgage is

for $180,000. How much money can he borrow if the bank will
lend 80 percent of the equity in the home?

2. Your credit card was stolen. You reported the theft within
24 hours. Before the theft was reported, the thief charged
$2,450 at a jewelry store and $1,245 at an electronics store.
How much of the fraudulent charges will you have to pay?

3. Jacki Marshall owes a balance of $5,000 on one credit card that charges 19 percent interest. She can pay off the balance in two years with monthly payments of $252.04. She has another credit card with a balance of $7,500 that charges 20 percent interest.
She can pay off the balance in two years with monthly payments of $381.72. Jacki owns a home valued at $150,000. She can get a home equity loan for $12,500 at 8 percent interest. Jacki can repay the loan in two years with monthly payments of $565.34. How much money will Jacki save if she takes out a home equityloan to pay off the credit card balances?

Answer 1

1. $56,000

2. $3,695

3. $1,644.48

Explanation:

1. Equity = valuation - mortgage

= $250,000 - $180,000

= $70,000

80% = 80/100 = 0.8

Therefore, 80% of the equity = 0.8 × $70,000

= $56,000

2. Total charges = jewelry charge + electronics charge

= $2,450 + $1,245

= $3,695

3.

First credit card:

Total payment = two years × monthly payments

= 2 × 12 × $252.04

= $6,048.96

Interest = total payment - balance

= $6,048.96 - $5,000

= $1,048.96

Second credit card:

Total payment = two years × monthly payments

= 2 × 12 × $381.72

= $9,161.28

Interest = total payment - balance

= $9,161.28 - $7,500

= $1,661.28

Home equity loan:

Total payment = two years × monthly payments

= 2 × 12 × $565.24

= $13,565.76

Interest = total payment - balance

= $13,565.76 - $12,500

= $1,065.76

Money saved = (total of interest from credit cards) - home equity loan interest

= ($1,048.96 + $1,661.28) - $1,065.76

= $1,644.48