Question

14. You want to buy your first home and the bank officer says that the monthly mortgage payment can be up to a maximum of 40% of your monthly household gross income (monthly). Your household gross income is $85,000/year. According to this bank officer, what is your maximum monthly mortgage payment from this bank?

17. You purchased your condo for $220,000 5 years ago. The current market value is $300,000. You still owe $165,000 on the mortgage. If you can borrow up to 85% of the market value, what is the maximum amount you can borrow? SHOW all work please!

19. You would like to purchase a townhouse but would need to borrow $250,000 at 4% interest on a 30-year loan. The estimated annual property taxes would be $1600 and the estimated home insurance would be $800 annually. The townhouse association fee each month is $600. a) What is the monthly payment on principal and interest (just the mortgage payment)? Show all work for full credit.
b) Given all monthly expenses, what is the total monthly cost of the townhouse? Show all the work

Answer 1

14. first we calculate monthly household gross income as $85,000/12 = $7,083.33.

maximum monthly mortgage payment = monthly household gross income*maximum monthly mortgage payment rate

maximum monthly mortgage payment = $7,083.33*40% = $2,833.33

17. maximum amount which can be borrowed = current market value*maximum borrowing rate = $300,000*85% = $255,000

but you already owe $165,000. So, you can borrow only $255,000 - $165,000 = $90,000

19. a) We can use financial calculator for monthly payment on mortgage with below key strokes;

N= no. of months = 30*12 = 360; I/Y= interest rate = 4.00%/12 = 0.33%; PV= present value = -$250,000; FV= future value =$0 > CPT=compute > PMT= monthly payment = $1,193.54

Note: PV needs to be entered as negative value otherwise financial calculator will give negative PMT value.

now we calculate monthly interest payment as ($250,000*4%)/12 = $10,000/12 = $833.33

Monthly principal payment = monthly mortgage payment - monthly interest payment = $1,193.54 - $833.33 = $360.21

b) total monthly cost of the townhouse = monthly mortgage payment + monthly property taxes, home insurance and association fee

total monthly cost of the townhouse = $1,193.54 + ($1600/12) + ($800/12) + $600 = $1,193.54 + $133.33 + $66.67 + $600 = $1,993.54