Question

You are planning to buy a house. Assume that you have the cash to pay 20% down payment on any home that your $2,400/month maximum payment can afford including taxes and insurance (no PMI required). A lender offers you a 30 year fixed mortgage for the remaining 80% with 4.5% APR with 1.5 points and $2,000 in fees. Property taxes are $3,600 and Casualty Insurance is $1,200. How expensive of a home can you purchase today?

Using the data from question #1.

What would your total amount due at closing be? (assuming no credits for prepaid property taxes)

Answer 1

M=P{ [r(1+r)^{n] / [(1+r)^{n}-1]}. These variables represent the following inputs:

• M is your monthly payment.
• P is your principal.
• r is your monthly interest rate, calculated by dividing your annual interest rate by 12.
• n is your number of payments (the number of months you will be paying the loan)

In This question

M = 1833$ { 2400 - (3600/12) - (1200/12) - (2000/12)}

P = ?

r = 4.125 % yearly (1 point will get 0.25% of APR, so 1.5 points will cut 0.375%), 0.34375% monthly or 0.0034375

n = 30 years or 360 months

So,

1833 = P{[0.0034(1+0.0034)^360] / {(1+0.0034)^360 -1]}

1833 = P {[0.0034*3.3937] / [3.3937 - 1]}

1833 = P { 0.0115 / 2.3937 }

1833 = P {0.0048}

P = 1833 / 0.0048

P = $ 381,875

Total Principle will be = Principle for month payment(Remaining after down payments) + Down payment

= 381,875 + [381,875/80] * 20

= 381,875 + 95,468.75

= 477,343.75 or 477,344 $

Monthly Installment is 2400, so if no credits for property taxes then last installment due will be 2400-300= 2100$