Question

Using excel and show formulas

You are planning to purchase a house that costs $480,000. You plan to put 20% down and borrow the remainder. Based on your credit score, you believe that you will pay 3.99% on a 30-year mortgage.

1. Base scenario (#1): Use function “PMT” to calculate your mortgage payment.
2. Scenario #2: Use function “PV” to calculate the loan amount given a payment of $1,500 per month. What is the most that you can borrow? Based on that information, please calculate the total paid, total interest paid and house value you can afford (assuming a down payment of 20%).
3. Scenario #3: Use function “RATE” to calculate the interest rate given a payment of $1,500 and a loan amount of $400,000. Please also calculate the total amount paid and total interest paid assuming a house value of $500,000 and down payment of 20%.
4. Scenario #4: Assume that you plan to pay an extra $300 per month on top of your mortgage payment (vs. Scenario #1 – use that scenario’s assumptions, not any other scenario). Calculate how long it will take you to pay off the loan given the higher payment (Use an interest rate of 3.99% and the loan amount you could borrow in Scenario #1). Calculate how much interest you will pay in total? Compare this to the value that you calculated for #1.

5. You want to determine whether or not you should save some of your money and put only 10% down on your house. Since you are only putting 10% down, lenders require that you purchase private mortgage insurance (PMI). Assume that the PMI payment is assessed annually as 1% of the current mortgage and that your house does not change in value over the life of the mortgage. You will pay the PMI on a monthly basis until the PMI payments are cancelled when your equity reaches 20% of the house value. Use the rest of your data from Scenario #1 (e.g., the $480,000 house value) as a base comparison.

   1. Calculate your total monthly payment (mortgage payment plus PMI).
   2. Calculate the total cost of financing your home purchase (interest plus PMI).
   3. Calculate the total cost of the home purchase; that is, the down payment plus principal (loan amount) plus interest plus PMI.
   4. Compare this to the costs associated with a 20% down payment

Answer 1

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