You want to buy a house financed with a 15-year fixed-rate mortgage. The best interest rate...

You want to buy a house financed with a 15-year fixed-rate mortgage. The best interest rate you could find is 7% APR. Payments are made monthly, so the APR should be assumed to be a simple interest rate (i.e. a stupid interest rate) added up over 12 months.

What is the most you can borrow if you can only afford to pay $1,800 per month?

Expert Solution

We are given the following information:

Monthly payment	PMT	1800.00
Rate of interest	r	7.00%
Number of years	n	15.00
Monthly compounding	frequency	12.00
Loan amount	PV	To be calculated

We need to solve the following equation to arrive at the required PV

So the maximum loan amount possible is 200260.72

Below is the amortization schedule:

Opening balance = previous year's closing balance
Closing balance = Opening balance-Principal repayment
PMT is calculated as per the above formula
Interest = 0.07 /12 x opening balance
Principal repayment = PMT - Interest

jeff jeffy answered 1 year ago

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