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A buyer can afford no more than $500 per month in payments. The most favorable loan...

A buyer can afford no more than $500 per month in payments. The most favorable loan available in the market is a 30 year loan at 9%. What is the maximum affordable house with a 20% down payment?

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Expert Solution

Information provided:

Monthly payment= $500

Time= 30 years*12= 360 months

Interest rate= 9%/12= 0.75% per month

The mortgage is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

PMT= 500

N= 360

I/Y= 0.75

Press the CPT key and PV to compute the present value.

The value obtained is 62,140.93.

Therefore, the mortgage is $62,140.93.

The down payment is: 0.20*$62,140.93/ 0.80

                                                              = $12,428.19/ 0.80

                                                              = $15,535.23

Therefore, the maximum affordable house is= $62,140.93 + $15,535.23

                                                                                     = $77,676.16.

In case of any query, kindly comment on the solution.

jeff jeffy answered 3 months ago
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