You are considering 3 homes –Home 1- 200,000 –Home 2 – 300,000 –Home 3 – 400,000...

You are considering 3 homes

–Home 1- 200,000

–Home 2 – 300,000

–Home 3 – 400,000

Assume: Mortgage rates are 3.5% for 30 years and 2.875% for 15 years. You have $60,000 to put down and cannot pay more than $1,600 per month for total mortgage payment. You must pay PMI for loans with less than 20% down =$150.

Determine:

Which homes you can afford at the specific terms outlined above (15/30).
How long until you pay off 1/2 of you mortgage for home 3 under a 30 year term

Solutions

Expert Solution

Part (1):

Since there is a cap of $1,600 permonth for total mortgage payment, the following are affordable:

Home-1 for 30 years

Home-1 for 15 years and

Home-2 for 30 years.

Details of calculations as follows:

Part (2):

226 monthly payments (18 years and 10 months) are required to pay off 1/2 of the mortgage. Relevant portion of amortization schedule as follows:

jeff jeffy answered 1 year ago

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