Question

You are ready to buy a house, and you have $31,000 for a down payment and closing costs. Closing costs are estimated to be 4% of the loan value. You have an annual salary of $36,000, and the bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 6% per year with monthly compounding (0.5% per month) for a 30-year fixed rate loan. How much money will the bank loan you?

Answer 1

$ 140,104.96

Explanation:

The amount the bank will the individual is the present value of the total mortgage payment.

monthly mortgage payment=28%*$36,000/12=$840

the payment is meant for 30 years but 360 months i.e 12*30

the amount of loan is the present value of $840 monthly for 360 months with 0.5% interest rate per month

=pv(rate,nper,-pmt,fv)

rate is 0.5%

nper is 360 months

pmt is $840 per month

fv is the total payments which is unknown

=pv(0.5%,360,-840,0)=$140,104.96

The loan amount is closest to $ 140,104.96