Monthly gross income $ 4,700 Down payment to be made (percent of purchase price) 20% Other debt (monthly payment) $ 260 Monthly estimate for property taxes and insurance $ 490 30-year loan
Monthly gross income $ 4,700 Down payment to be made (percent of purchase price) 20% Other debt (monthly payment) $ 260 Monthly estimate for property taxes and insurance $ 490 30-year loan
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
Related questions
Question
Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation. (Refer to the images)
Note: Round time value factor to 2 decimal places, intermediate and final answers to the nearest whole number.
| Mortgage | ||
|---|---|---|
| Monthly gross income | $ 4,700 | |
| Down payment to be made (percent of purchase price) | 20% | |
| Other debt (monthly payment) | $ 260 | |
| Monthly estimate for property taxes and insurance | $ 490 | |
| 30-year loan | 8.0% |
1.) What is the affordable monthly mortgage payment?
2.) What is the affordable mortgage amount?
3.) What is the affordable house purchase price?
Transcribed Image Text:Step 1: Determine your monthly gross income (annual income divided
by 12).
Step 2: With a down payment of at least 5 percent, lenders use 33
percent of monthly gross income as a guideline for PITI (principal,
interest, taxes, and insurance) and 38 percent of monthly gross
income as a guideline for PITI plus other debt payments.
Step 3: Subtract other debt payments (e.g., payments on an auto
loan) and an estimate of the monthly costs of property taxes and
homeowner's insurance.
(a) Affordable monthly mortgage payment
Step 4: Divide this amount by the monthly mortgage payment per
$1,000 based on current mortgage rates-an 8 percent, 30-year loan,
for example (see Exhibit 9-9)—and multiply by $1,000.
(b) Affordable mortgage amount
Step 5: Divide your affordable mortgage amount by 1 minus the
fractional portion of your down payment (e.g., 1.1 with a 10
percent down payment).
(c) Affordable home purchase price
Example A Example B
$48,000
$48,000
+ 12
+ 12
$4,000 ×
.38 =
$1,520
-380
-300
$840
$4,000 x
.33 =
$1,320
+ .9
-300
$1,020
÷ $7.34
+ $7.34
× $1,000 × $1,000
$114,441 $138,965
+ .9
$127,157 $154,405
Transcribed Image Text:Term Rate
3.0%
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
30 years
$4.22
4.49
4.77
5.07
5.37
5.68
6.00
6.32
6.65
6.99
7.34
25 years
$4.74
5.01
5.28
5.56
5.85
6.14
6.44
6.75
7.07
7.39
7.72
20 years
$5.55
5.80
6.06
6.33
6.60
6.88
7.16
7.46
7.75
8.06
8.36
15 years
$6.91
7.15
7.40
7.65
7.91
8.17
8.44
8.71
8.99
9.27
9.56
Expert Solution
Step 1: Define=mortgage loans
Mortgage loans are secured loans and these are paid by monthly payments and these monthly payments depend on the monthly income.
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