Question

Using the financial calculator and the diagramming techniques, please answer the questions and include the diagrams Part A You wish to purchase a home and have been very successful in saving $12,000 for a down payment. You can get a 30 year mortgage at a fixed rate of 11.5%. The most you can afford is $630 / month for payment. What's the maximum you can pay for a house? Part B You plan to be married soon and your partner can contribute $250/month toward the monthly payment, but nothing toward the down payment. Now what price can you afford to pay? Part C You have learned of a special bank offer to first-time home buyers. Interest rates will be dropped to 9% for the life of the mortgage. Now, what can you afford to pay?

Answer 1

Part A :

Down payment = $ 12000

Monthly Payment = $ 630

Rate p.a. = 11.5%, Rate per month = 11.5%/12 = 0.958

No. of Installment = 30years * 12 = 360 month

EMI = Principal/ PVAF(rate, no. of months)

Principal = EMI * PVAF( rate , No. of months)

= 630* PVAF( 0.958%, 360)

= 630*100.980

= 63720

Maximum Amount Mr. A can paid = 63620 + 12000 = $ 75620

Part B : Monthly Payment = 630 + 250 = $ 880

Down Payment = $ 12000

  Rate p.a. = 11.5%, Rate per month = 11.5%/12 = 0.958

No. of Installment = 30 years * 12 = 360 month

EMI = Principal/ PVAF(rate, no. of months)

Principal = EMI * PVAF( rate , No. of months)

= 880 * 100.980

= 88860

Maximum Amount Mr. A can paid = 88860 + 12000 = $ 100860

Part C : Monthly Payment = 630

Down Payment = $ 12000

  Rate p.a. = 11.5%, Rate per month = 11.5%/12 = 0.958

No. of Installment = 30 years * 12 = 360 month

EMI = Principal/ PVAF(rate, no. of months)

Principal = EMI * PVAF( rate , No. of months)

= 630* 315.391

= 198700

Maximum Amount Mr. A can paid = 1,98,700 + 12,000 = $ 2,10,700

Part C : considering Monthly Installment = $ 880

Principal = EMI * PVAF( rate , No. of months)

= 880* 315.391

= $ 277540

Maximum Amount Mr. A can paid = 2,77,540 + 12,000 = $ 2,89,540