Question

A family purchased a house 10 years ago for $90, 000. The family put a 20% down payment on the house, and signed a 30-year mortgage at 9% on the unpaid balance. The net market value of the house (amount after subtracting all fees involved with selling the house) is now $140, 000, and the family wishes to sell the house. How much equity does the family have in the house now after making 120 monthly payments?

Answer 1

Equity in house can be calculated by subtracting the amount one owes on all loans secured by the house from its appraised value
Particulars	Amount($)
Appraised value/Net market value	140,000.00
amount that family still owes	64,389.08
Equity in house	75,610.92
calculation of amount that family still owes
Particulars	Amount($)
Purchase cost	90000
down payment	18000
Mortgaged amount	72000
Rate of interest	9%
Period (in terms)	360
Based on information above, we can calculate monthly payment by using excel function PMT
Monthly payment =PMT(9%/12,360,72000)=$579.33

Amortizing loan
Period	Principal	Interest	payment	Balance
0				72,000.00
1	39.33	540	579.33	71,960.67
2	39.62	539.71	579.33	71,921.05

Note : Interest is calculated @9% on balance amount starting from period Zero. Then it is divided by 12 since 9% rate is for year and not month. Then from payment amount, interest amount is deducted to get principal amount. And then balance is calculated by deducting principal from balance of previous period. Like this we have to continue for 120 monthly installments and then we will get the figure of loan which family still owes.