17. You've decided to upgrade from your modest townhome to a beautiful new waterfront home on...

17. You've decided to upgrade from your modest townhome to a beautiful new waterfront home on Daniel Island. The house is not on the market yet, but your friend in real estate represents the seller and tells you the list price will be 1,750,000. You have enough cash on hand for a 30% down payment, but will need to finance the remainder. Your banker expects your new mortgage rate to be approximately 2.2% compounded monthly. What will your monthly payment be if offer the seller full price and finance with a 30 year mortgage?

Expert Solution

We assume that the 2.2% is the annual rate hence the monthly rate will be = 2.2/12 = 0.1833%. The remaining amount to be financed is = 0.7 x 1750000 = 1225000. Let the monthly payment be A. Hence, writing the present value equation :

1225000 = A x (1/1.001833 + 1/1.001833^2 +... + 1/1.001833^360)

Hence, A = 4651.086

jeff jeffy answered 2 years ago

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