Question

In: Finance

Michael Jordan has just arranged to purchase an $825,000vacation home in the Bahamas with a...

Michael Jordan has just arranged to purchase an $825,000 vacation home in the Bahamas with a 20% down-payment. The loan has an interest rate of 5.4% (compounded monthly) and a 30-year term. If the value of the home is expected to appreciate 2% per year, what will his equity in the house be in 8 year?

Expert Solution

Price of Vacation Home = $825,000

Loan amount after down-payment = Price*(1-% of down-payment)

= $825,000*(1-0.20)

Loan amount =$660,000

- Calculating the Loan Balance after 8 years:-

Where, P = Loan Amount = $660,000

r = Periodic Interest rate = 5.4%/12 =0.45%

n= no of periods = 30 years*12 = 360

m = no of payments already made = 8 years*12 = 96

Outstanding Balance of Loan after 8 years = $571,856.86

- Calculating the Value of House after 8 years:-

Value of House = Purchase price*(1+Increase % per year)^8

Value of House = $825,000*(1+0.02)^8

Value of House after 8 years = $966,618.99

- Home Equity after 8 years = Value of House after 8 years - Outstanding Balance of Loan after 8 years

= $966,618.99 - $571,856.86

= $394,762.13

So, his equity in the house be in 8 year is $394,762.13

jeff jeffy answered 2 years ago

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