4. A general rule of thumb is that your monthly mortgage payment should not exceed 25% ofyour household's gross monthly income. Consider the situation of Jerry and Tracy, who justcommitted to a $400,000 mortgage on their dream home. They have reduced their financingchoices to a 30-year conventional mortgage at 5% APR, or a 30-year interest-only mortgage at5% APR. Their combined gross annual income is $100,000.4-1What is the monthly payment for the conventional mortgage? Do they qualify forthe conventional mortgage? Why?4-2.What is the monthly payment for the interest-only mortgage? Do they qualify forthe interest-only mortgage? Why?

Mortgage: A mortgage represents the loan taken by the borrower from the lender to purchase houses…

4-1 What is the monthly payment for the conventional mortgage? Do they qualify for the conventional mortgage? Why? 4-2. What is the monthly payment for the interest-only mortgage? Do they qualify for the interest-only mortgage? Why?

4-1 What is the monthly payment for the conventional mortgage? Do they qualify for the conventional mortgage? Why? 4-2. What is the monthly payment for the interest-only mortgage? Do they qualify for the interest-only mortgage? Why?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

4. A general rule of thumb is that your monthly mortgage payment should not exceed 25% of
your household's gross monthly income. Consider the situation of Jerry and Tracy, who just
committed to a $400,000 mortgage on their dream home. They have reduced their financing
choices to a 30-year conventional mortgage at 5% APR, or a 30-year interest-only mortgage at
5% APR. Their combined gross annual income is $100,000.
4-1
What is the monthly payment for the conventional mortgage? Do they qualify for
the conventional mortgage? Why?
4-2.
What is the monthly payment for the interest-only mortgage? Do they qualify for
the interest-only mortgage? Why?

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A family decides they want to spend no more than $203,410.19. $1,200 on their monthly mortgage payments. If they can get a 30-year fixed-rate mortgage with a 5.85% APR while making a 20% down payment, what is the most expensive house they can afford? $255,262.74 $203,410.19 $259,226.55 $207,381.24
4.Ben and Jen are looking at a home that has an annual property tax of $3700 and an average heating cost of $225.00 per month. Ben on average works 40 hours per week and makes $40.70 per hour. Jen receives a salary of $4050.00 per month. a. According to the GDSR formula, what is the maximum monthly mortgage payment they can afford? b. What price how house could they afford if they have a down payment of $25 000 saved up and take a mortgage for 25 years with monthly payments at an interest rate of 3.5% compounded monthly?
Jatapra
6
4. The McDaniel family is purchasing a home, and have two fixed-rate loan offers to consider for their mortgage. The home costs $156,000 and they have a 20 % down payment. They must choose between a 30-year mortgage at 5% or a 25-year mortgage at 5.5%. Calculate the monthly payment and total interest for each loan. Which is the better deal? Explain your choice
Mr. and Mrs. Murthy have a totally monthly gross income of $6000.00. They are interested in purchasing a house with a mortgage payment of $1300.00 per month, annual heating costs of $2100.00, and annual property taxes of $3675.00. Calculate the gross debt service ratio (GDSR). Determine if a bank is likely to offer them the mortgage. Justify your answer.
Use Worksheet 5.3. Rachel and Alexander Harrison need to calculate the amount they can afford to spend on their first home. They have a comt annual income of $67,500 and have $37,000 available for a down payment and closing costs. The Harrisons estimate that homeowner's insurance property taxes will be $250 per month. They expect the mortgage lender to use a 30 percent (of monthly gross income) mortgage payment afford ratio, to lend at an interest rate of 6 percent on a 30-year mortgage, and to require a 10 percent down payment. Based on this information, use th home affordability analysis form in Worksheet 5.3 to determine the highest-priced home the Harrisons can afford. Assume that closing costs are o of the down payment. Round the answer to the nearest dollar.
Scott & Rebecca can afford to pay $2,500.00 each month for a mortgage. Their credit union is offering home loans at 4.5%. If they take out a 25-year mortgage how much can they afford to borrow? Heidi & Peter can only afford $1,250.00 per month for a mortgage. Their credit union is also offering home loans at 4.5%. If they take out a 25-year mortgage how much can they afford to borrow? S
Problem: Justin and Hayley are interested in a fixed-rate mortgage for $450,000. They are undecided whether to choose a 15- or 30-year mortgage. The current mortgage rate is 3.5% for the 15-year mortgage, and 3.85% for the 30-year mortgage. (a) What are the monthly principal and interest payments for EACH loan? Show your work. (b) What is the total amount of interest paid on EACH loan? Show your work. (c) Overall, how much more interest is paid by choosing the 30-year mortgage? Show your work.
2. Assume Josephine purchases a home for $180,000 and has a 20% down payment. If she finances the purchase with a 30 year mortgage with a 4% interest rate……what is her monthly payment? If she pays the mortgage through the entire term with no early payment, how much interest will she pay over the life of the loan?
13) Some financial advisors recommend that your monthly mortgage payment be no higher than 28% of your monthly net income. What is 28% of your monthly net income, as determined in question twelve? This is the estimated amount you can afford per month for a mortgage. 4,518*0.28 $1,265 28% of my monthly net income is $1,265. 14) We can calculate how much of a house you can afford using the loan formula. In question thirteen, you determined the monthly mortgage payment you can afford. Using this value for the regular monthly payment, calculate the present value (P), assuming you receive a 30-year mortgage (loan) with an annual interest rate of 6.328% with monthly compounding. (Note: This rate is realistic for a mortgage initiated in January 2024.) I need to use Loan formula to find the present value (P). please help me
5. Erin borrowed $200,000 fixed-rate 30-yr mortgage when mortgage rate was 4.5%. How much total interest will she pay if she does not pay off the mortgage earlier? She heard that some house buyers choose to make one extra monthly payment each year so as to pay off their mortgage earlier and therefore reduce the interest payment. Erin decided to do so too. Each year, she will split the extra payment to 12 month so that she pays $1098 per month all the way until paying off the mortgage. Doing so will pay off her mortgage within 307 months instead of 30 years. How much interest will she save? If you were Erin and have extra money, are you financially better off by making extra monthly payment and paying off your mortgage earlier |

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