Question

In: Finance

Suppose you decide to purchase a $150,000 home using an inheritance of $20,000 as your down...

Suppose you decide to purchase a $150,000 home using an inheritance of $20,000 as your down payment. A down payment is subtracted from the total cost of the home and therefore you owe $130,000. To pay for this amount you will need a loan, so $130,000 is the principal on your loan. Suppose the interest rate on a 30 year mortgage is 4.75%.
1. What will your monthly payment be?
2. How much will you pay on the loan if you pay off the loan as scheduled?
3. The cost of a loan is the total amount of interest paid. What is the cost of this loan?
4. Create an amortization table for this loan.
5. What portion of the first payment is interest? What portion of the 180th payment is interest? What portion of the last payment is interest?
6. How much would you save in interest if you paid an extra 10% per month?
7. How much faster would you pay off the loan if you paid an extra 10% per month?

Expert Solution

The monthly payment on the loan is calculated using the following equation

Present value of the loan = $150000 - $20000

Monthly payment will be = $ 678.14

------------------------------------------------------------------------------------------

Total paid on the loan = $ 678.14 360 months

Total paid on the loan = $ 244131

---------------------------------------------------------------------------------------------

Cost of the loan = $ 244131 - $ 130000

Cost of the loan = $ 114131

-------------------------------------------------------------------------------------------------

The amortization schedule of the loan is created using excel.

Month	Beginning balance ($)	Monthly payment ($)	Interest ($)	Principal ($)	Ending balance ($)
1	130000	678.14	514.58	163.56	129836.4

The interest payment on the first portion = ( 0.0475 12 ) 130000 = $ 514.58

----------------------------------------------------------------------------------------------------

The portion of the 180th payment that goes towards interest = $346.42

The portion of the last payment paid towards inrerest = $2.68

------------------------------------------------------------------------------------------------

10% extra per month = $ 678.14 + 0.10 $ 678.14 = $ 745.95

If 10% extra is paid per month , the total interest paid = 91046.25

Savings in intrerest = $ 114131 - $ 91046.25

Savings in interest = $ 23084.75

The loan will be paid off in 296 months or 24.76 years

The loan will be paid off 5.33 years earlier.

The amortization schedule is shown below

jeff jeffy answered 1 year ago

Suppose that you want to purchase a home for $220,000 using a down payment as described...

Suppose that you want to purchase a home for $220,000 using a down payment as described below and you finance the rest of the purchase by taking out a 15-year mortgage at 4.5% interest compounded monthly. The amount of the down payment is $56,083. Construct an amortization table for the entire length of the loan making sure to include columns for the payment number, the amount of the payment, the amount of each payment that goes towards the principal, the amount...

You are considering the purchase of a home priced at $175,000, using 15% down.

You are considering the purchase of a home priced at $175,000, using 15% down. The rest will be financed at 4.29% over 360 months. What is your monthly payment expected to be?A) $853B) $1,187C) $735.25D) $556.7914) For the loan in #13, what is the loan constant?A) 5.93%B) 4.29%C) 8.17%D) 6.77%15) If there were 2 points and $790 in fees to the lender to be paid to obtain the interest rate in problem #13, what would be the APR of the...

Suppose you plan to purchase a $250,000 home. You plan to put 5% down, and take...

Suppose you plan to purchase a $250,000 home. You plan to put 5% down, and take a loan from the bank for the remaining amount. The bank has offered you a 30-year loan with a 4.5% APR (compounded monthly). Calculate the total interest paid to the bank in the 2nd year of the loan. (Round to 2 decimals)

Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment

Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the...

You put 20% down on a home with a purchase price of $250,000. The down payment...

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. A bank will loan you this remaining balance at 3.91% APR. You will make monthly end-of-the-period payments with a 30-year payment schedule. What is the monthly annuity payment under this schedule?

1. Assume you need to borrow $150,000 to purchase a home. You plan on living in...

1. Assume you need to borrow $150,000 to purchase a home. You plan on living in your new house for only 6 years, so you are trying to determine whether you want an adjustable or fixed rate mortgage from your bank. Both loans would be amortized over 15 years. (assume monthly payments) Adjustable Rate – Tied to the U.S. T-Bill rate, which is estimated to be 2.8% in Yr 1 and 3.1% in Yr 2. After the first 2 years,...

Suppose you are a corn farmer in your home state. You have to decide between two...

Suppose you are a corn farmer in your home state. You have to decide between two projects. One project is to purchase new equipment for your farm that will help boost your profits for the next 10 years. You also find out that you can purchase a large banana farm in Brazil for the same price as the equipment, and at the current market price for bananas you will make a lot more profit than you would from purchasing new...

. Which option is better for your purchase of a $230,000 home with a 18% down...

. Which option is better for your purchase of a $230,000 home with a 18% down payment: A) Interest rate of 9.5% with a 15 year mortgage or B) Interest rate of 5.5% with a 30 year mortgage? *****To answer which is "better" you must address which option has a lower monthly payment, *AND* which option will cost you more interest by the end of the loan. ***** Using the simple interest formula, for *both options above*, calculate the interest...

Suppose you purchase a $300,000 condominium for your personal residence putting down

Suppose you purchase a $300,000 condominium for your personal residence putting down 3% and borrowing the balance at a rate of 3.5% for 30 years. If you move in on July 1 of 2021, approximately how much of a tax deduction can you take for the tax year 2021 assuming you itemize your deductions and are not subject to any SALT limits? How does this change the after-tax cost of your mortgage? Show all calculations.Consider a 4-unit residential property for...

After working for three years, you decide to purchase your first home, which has a sales...

After working for three years, you decide to purchase your first home, which has a sales price of $350,000. With $70,000 down payment, what is your monthly mortgage payments for a 30-year loan at an annual interest rate of 4.75%. Assume the payments are made at the end of each period (i.e., ordinary annuity). a) Calculate the monthly installments b) Build an amortization table for the life of loan. For each payment, show the beginning loan balance, interest payment, principal...