Question

A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If mortgage rates are 6.25% for a 30-year fixed-rate mortgage, how large can his mortgage be? If his parents give him $20,000 for a down payment, what is the most he can pay on a house with a 15-year mortgage if the interest rate is 5.50%?

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Answer 1

Calculation of Net Monthly Payment
	Gross Monthly Payment	$      1,800.00
Less:	Property Tax (3000/12)	$          250.00
Less:	Insurance	$          110.00
	Net Monthly Payment	$      1,440.00
Calculation of Present Value of mortgage
	Net Monthly Payment	$      1,440.00
	Monthly Interest Rate (6.25%/12)	0.52%
	Period =12*30=	360.00
	Present Value of mortgage	$233,873.60
Calculation of Maximum amount he can pay on a house
	Net Monthly Payment	$      1,440.00
	Monthly Interest Rate (5.5%/12)	0.46%
	Period =12*15=	180.00
	Present Value of mortgage	$176,236.59
Add	Down Payment	$    20,000.00
	Maximum Amount He can pay	$196,236.59

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