A young married couple has carefully looked at their budget. After review, they can afford a...

A young married couple has carefully looked at their budget. After review, they can afford a monthly mortgage payment of $1,139.00. They go to their local banker and she offers them a mortgage of 4.08% APR with monthly compounding with a term of 30 years. The couple has enough savings to pay 20% down, so the mortgage will be 80% of the home’s value.

What is the mortgage that the couple can apply for based on their budget and the offered terms?

Answer Format: Currency: Round to: 2 decimal places.

Expert Solution

Monthly payment (P)=   $1,139
APR is 4.08% or   0.0408
monthly interest rate = 0.0408/12=   0.0034
No of months in 30 years = 12*30=   360
To Calculate maximum loan amount, present value of annuity formula will be used

Present value of annuity formula =  P * (1- (1/(1+r)^n))/r
=(1139*(1-(1/((1+0.0034)^360)))/0.0034)
=236287.9894
So loan couple can get is $236287.99

They can apply mortgage based on home value
So home value = 236287.99/80%
295359.9867

They can apply mortgage for $295,359.99 of Home value. Out of which 20% will be down payment and for 80% value they will get loan.

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jeff jeffy answered 8 months ago

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