A house (real estate investment) is purchased for $600,000, 20% cash down, 80% mortgage financing, 4%...

A house (real estate investment) is purchased for $600,000, 20% cash down, 80% mortgage financing, 4% interest rate, 30 years monthly. The appreciation in the house is 5%/ year. What is the compound annual growth rate (CAGR) of the equity in the house?
In problem #1, what is the interest in years 1 through 5? (amort)

Expert Solution

Initial Price of the House = $ 600000, Down Payment: 20%, Mortgage = 80% of House Price = 0.8 x 600000 = $ 480000. Interest Rate = 4 % per annum, Mortgage Tenure = 30 years or (30 x 12) = 360 months

Applicable Monthly Rate = 4/12 = 0.33 %

Let the required monthly repayments be $ p

Therefore, 480000 = p x (1/0.003333) x [1-{1/(1.003333)^(360)}]

480000 = p x 209.4714

p = 480000 / 209.4714 = $ 2291.48

Growth in Price of House = 5 %

Interest Payment Calculation (Year 1-Year 5)

jeff jeffy answered 5 months ago

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