Aya and Sakura would like to buy a house and their dream home costs $500,000. Their goal is then to save $50,000 for a down payment and then would take out a mortgage loan for the rest. They plan to put their monthly saved amount in a conservative mutual fund that has a track record of a 4.25% rate of return. Aya and Sakura have now saved up their down payment to buy a home, but they still need to borrow to cover the rest. For the home they want this will require a mortgage of $450,000 to cover the remaining amount and they're not sure whether they could afford the monthly loan payments. The bank has offered them a mortgage interest rate of 4.25% compounded monthly How much would they have to be able to afford to pay each month in order to pay off their mortgage in 25 years? [1] What is the total amount that would be paid to the lender after 25 years of payments?
answer using TVM formulas
Aya and Sakura would like to buy a house and their dream home costs $500,000. Their goal is then to save $50,000 for a down payment and then would take out a mortgage loan for the rest. They plan to put their monthly saved amount in a conservative mutual fund that has a track record of a 4.25%
Aya and Sakura have now saved up their down payment to buy a home, but they still need to borrow to cover the rest. For the home they want this will require a mortgage of $450,000 to cover the remaining amount and they're not sure whether they could afford the monthly loan payments.
The bank has offered them a mortgage interest rate of 4.25% compounded monthly
How much would they have to be able to afford to pay each month in order to pay off their mortgage in 25 years? [1]
What is the total amount that would be paid to the lender after 25 years of payments? [2]
This is a question from amortization of loan. We need to find the monthly mortgage payment to be paid each month in order to pay off their mortgage in 25 years.
There is a fairly standard formula for PV of an annuity. We will use that formula.
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