Question
In: Finance
You want to buy a house that costs $230,000. You have $23,000 for a down payment,...
You want to buy a house that costs $230,000. You have $23,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $207,000. However, the realtor persuades the seller to take a $207,000 mortgage (called a seller take-back mortgage) at a rate of 8%, provided the loan is paid off in full in 3 years. You expect to inherit $230,000 in 3 years, but right now all you have is $23,000, and you can afford to make payments of no more than $23,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.)
-
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?
-Select-No, the calculated payment is greater than the affordable payment.Yes, the calculated payment is less than the affordable payment.No, the affordable payment is greater than the calculated payment.Yes, the calculated payment is greater than the affordable payment.Item 2 -
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?
-Select-Yes, the calculated payment is less than the affordable payment.No, the calculated payment is greater than the affordable payment.No, the affordable payment is greater than the calculated payment.Yes, the calculated payment is greater than the affordable payment.Item 4 -
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. What would the loan balance be at the end of Year 3, and what would the balloon payment be? Do not round intermediate calculations. Round your answers to the nearest cent.
Loan balance: $
Balloon payment: $
Solutions
Expert Solution
a, How large will be the yearly installment, please see the below calculation
| House Cost | 230000 |
| Down Payment | 23000 |
| Monthly Afforable EMI | 1,916.67 |
| Interest Rate | 8% |
| Amount of Loan | $207,000.00 |
| Montly EMI | ($6,486.63) |
| Total Payment | ($233,518.60) |
| Affordable Paid Amounts( total ) | 69000 |
| Total Outstanding | ($164,518.60) |
| or Yearly installment | |
| Installment amount Yearly | ($80,322.94) |
| Total Payment | ($240,968.81) |
| Affordable Paid Amounts (total) | 69000 |
| Total Outstanding | ($171,968.81) |
Borrower unable to afford yearly installment as calculated amount is higher than afforable payment
Calculation for identifying Loan EMI / Yearly payment.
EMI = p * r * ((1+r)^n)/((1+r)^n)-1)
p = Principal loan amount
r = 8% (if it is yearly payment) ; r = 8% / 12, for monthly
n = 3 (if it is yearly payment) ; n = 36, for monthly
b,
if it is 30 year loan, borrower can afford the EMI or yearly installment, please see the below calculation for 30 year loan repayment history.
| House Cost | 230000 |
| Down Payment | 23000 |
| Monthly Afforable EMI | 1,916.67 |
| Interest Rate | 8% |
| Amount of Loan | $207,000.00 |
| Montly EMI | ($1,518.89) |
| Total Payment | ($546,801.36) |
| Yearly Payment | ($18,226.71) |
| Affordableyearly Payment | 23000 |
| Yearly Payment | ($18,387.28) |
| Total Payment | ($551,618.36) |
| Affordable yearly Payment | 23000 |
c,
Borrower can close the loan while making ballon note, at the end of 3rd year borrower can pay $ 201,370 to close the loan.
Please see the below table.
| Year | Opening Balance | EMI*12 | Interest paid yearly | Principal paid yearly | Closing Balance | |
| 1 | 2,07,000 | 18,227 | 16,498 | 1,729 | 2,05,271 | |
| 2 | 2,05,271 | 18,227 | 16,354 | 1,873 | 2,03,398 | |
| 3 | 2,03,398 | 18,227 | 16,199 | 2,028 | 2,01,370 | Can be close with paying $201370 |
| 4 | 2,01,370 | 18,227 | 16,030 | 2,196 | 1,99,173 | |
| 5 | 1,99,173 | 18,227 | 15,848 | 2,379 | 1,96,795 | |
| 6 | 1,96,795 | 18,227 | 15,650 | 2,576 | 1,94,218 | |
| 7 | 1,94,218 | 18,227 | 15,437 | 2,790 | 1,91,428 | |
| 8 | 1,91,428 | 18,227 | 15,205 | 3,022 | 1,88,407 | |
| 9 | 1,88,407 | 18,227 | 14,954 | 3,272 | 1,85,134 | |
| 10 | 1,85,134 | 18,227 | 14,683 | 3,544 | 1,81,590 | |
| 11 | 1,81,590 | 18,227 | 14,389 | 3,838 | 1,77,752 | |
| 12 | 1,77,752 | 18,227 | 14,070 | 4,157 | 1,73,595 | |
| 13 | 1,73,595 | 18,227 | 13,725 | 4,502 | 1,69,093 | |
| 14 | 1,69,093 | 18,227 | 13,351 | 4,875 | 1,64,218 | |
| 15 | 1,64,218 | 18,227 | 12,947 | 5,280 | 1,58,938 | |
| 16 | 1,58,938 | 18,227 | 12,508 | 5,718 | 1,53,219 | |
| 17 | 1,53,219 | 18,227 | 12,034 | 6,193 | 1,47,027 | |
| 18 | 1,47,027 | 18,227 | 11,520 | 6,707 | 1,40,320 | |
| 19 | 1,40,320 | 18,227 | 10,963 | 7,264 | 1,33,056 | |
| 20 | 1,33,056 | 18,227 | 10,360 | 7,867 | 1,25,189 | |
| 21 | 1,25,189 | 18,227 | 9,707 | 8,519 | 1,16,670 | |
| 22 | 1,16,670 | 18,227 | 9,000 | 9,227 | 1,07,443 | |
| 23 | 1,07,443 | 18,227 | 8,234 | 9,992 | 97,451 | |
| 24 | 97,451 | 18,227 | 7,405 | 10,822 | 86,629 | |
| 25 | 86,629 | 18,227 | 6,507 | 11,720 | 74,909 | |
| 26 | 74,909 | 18,227 | 5,534 | 12,693 | 62,217 | |
| 27 | 62,217 | 18,227 | 4,481 | 13,746 | 48,471 | |
| 28 | 48,471 | 18,227 | 3,340 | 14,887 | 33,584 | |
| 29 | 33,584 | 18,227 | 2,104 | 16,123 | 17,461 | |
| 30 | 17,461 | 18,227 | 766 |
jeff jeffy answered 1 year ago