Question

You can afford a $850 per month mortgage payment. You've found a 30 year loan at 7% interest.

a) How big of a loan can you afford?

$

b) How much total money will you pay the loan company?

$

c) How much of that money is interest?

$

Answer 1

Part A:

Loan AMount = PV of EMIs.

PV of Annuity:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$               850.00
Int Rate	0.5833%
Periods	360

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 850 * [ 1 - [(1+0.0058)^-360]] /0.0058
= $ 850 * [ 1 - [(1.0058)^-360]] /0.0058
= $ 850 * [ 1 - [0.1232]] /0.0058
= $ 850 * [0.8768]] /0.0058
= $ 127761.43

Part B:

Total Amount Paid
Total Amount paid = Instalment * No. of Instalments
= $ 850 * 360
= $ 305999.99
I.e $ 306000

Part C:

Total Int Paid
Total Int paid = [ Instalment * No. of Instalments ] - Loan Amount
= [ $ 850 * 360 ] - $ 127761.43
= [ $ 306000 ] - $ 127761.43
= $ 178238.57

Pls comment, if any further assistance is required.