Consider a home mortgage problem. The house in question will cost $200,000. The down payment is...

Consider a home mortgage problem. The house in question will cost $200,000. The down payment is 20%, or $40,000, which means the loan will be for $160,000. The loan will be a 15-year loan. The annual interest rate (APR) is 3.5%. Payments to the bank are monthly. Address the following:

Compute the monthly loan payment
Construct a loan amortization schedule for the life of the loan
In addition to the monthly loan payments, it is estimated that the following outflows will occur each month: $100 in property tax, $100 in home insurance, and $125 in upkeep and maintenance. Given these estimates, compute the total monthly cash outflow (which should include the monthly loan payment).

Expert Solution

Monthly loan payment is calculated using PMT function in Excel :

rate = 3.5% / 12 (converting annual rate into monthly rate)

nper = 15*12 (15 year loan with 12 monthly payments each year)

pv = 160000 (loan amount)

PMT is calculated to be $1,143.81

Interest in any month = principal outstanding at beginning of month * 3.5% / 12

Principal portion of monthly payment = monthly payment minus interest portion of payment

principal outstanding at end of month = principal outstanding at beginning of month minus principal portion of monthly payment

total monthly cash outflow = $1,143.81 + $100 + $100 + $125 = $1,468.81

jeff jeffy answered 1 year ago

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