Question

You want to buy a house that costs $100,000. You have $10,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $90,000. However, the realtor persuades the seller to take a $90,000 mortgage (called a seller take-back mortgage) at a rate of 10%, provided the loan is paid off in full in 3 years. You expect to inherit $100,000 in 3 years, but right now all you have is $10,000, and you can afford to make payments of no more than $19,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.)

What would the loan balance be at the end of Year 3? Do not round intermediate calculations. Round your answer to the nearest cent.
$  

What would the balloon payment be? Do not round intermediate calculations. Round your answer to the nearest cent.

1. If the loan was amortized over 3 years, how large would each annual payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

   Could you afford those payments?

2. No, the calculated payment is greater than the affordable payment.

3. Yes, the calculated payment is less than the affordable payment.

4. No, the affordable payment is greater than the calculated payment.

5. Yes, the calculated payment is greater than the affordable payment.

6. Yes, the affordable payment is less than the calculated payment.

7. If the loan was amortized over 30 years, what would each payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

   Could you afford those payments?

8. Yes, the calculated payment is less than the affordable payment.

9. No, the calculated payment is greater than the affordable payment.

10. No, the affordable payment is greater than the calculated payment.

11. Yes, the calculated payment is greater than the affordable payment.

12. No, the affordable payment is less than the calculated payment.

13. To satisfy the seller, the 30-year mortgage loan would be written as a balloon note, which means that at the end of the third year, you would have to make the regular payment plus the remaining balance on the loan.

14. What would the loan balance be at the end of Year 3? Do not round intermediate calculations. Round your answer to the nearest cent.
    $  

    What would the balloon payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
    $  

Answer 1

1)

Balance of loan at the end of 3rd year is as follows:

Resultant table:

The balance is $56,900

2) The ballon payment is $56,900 at the end of third year.

3) If the loan to be amoritzed in three year the annual payment of loan is as follows:

Futuer value factor of annuity
	2.486852
Annuity value	$90,000/2.486852
Annuity value	$36,190.33

We could not afford this becuase the calculated payment is exceeds the affordable payment

4)

The value of annual payment,if amortized in 30 years

Futuer value factor of annuity
	9.426914
Annuity value	$90,000/9.426914
Annuity value	$9,547.132

Yes, we can afford it becuase the calculated payment is lower than affordable payment.