PFIN 7:STUDENT EDITION-TEXT
7th Edition
ISBN: 9780357033616
Author: Billingsley
Publisher: CENGAGE L
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Chapter 5, Problem 3FPE
Summary Introduction
To discuss: The alternative whether to buy or rent.
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Your friend is currently paying $734 in rent monthly in Fort Wayne and would rather apply the payment toward purchasing a home. If she can get a 30 year mortgage at 4.67% APR using her current payment amount, how much could she borrow? What could you type into Excel to calculate this value?
Suppose you have graduated from college and want to purchase a house. Your take-home pay is $4560 per month and you wish to stay within the recommended guidelines for mortgage amounts by only spending 14 of your take-home pay on a house payment. You have $18,500 saved for a down payment. With your good credit and the down payment you can get an APR from your bank of 4.35%, compounded monthly.a. What is the total cost of a house you could afford with a 15-year mortgage?b. What is the most that you could afford with a traditional 30-year mortgage instead of a 15-year?
Can Olivia and Anthony Afford This Home Using the Monthly Income Loan Criterion?
Next week, your friends Olivia and Anthony want to apply to the Fourth Global Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $125,000. Given your knowledge of personal finance, they’ve asked for your help in completing the Home Affordability Worksheet that follows. (Note: When completing the form, round each dollar amount to the nearest whole dollar.)
To assist in the preparation of the worksheet, Olivia and Anthony also collected the following information:
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Their financial records report a combined gross before-tax annual income of $125,000 and current (premortgage) installment loan, credit card, and car loan debt of $1,823 per month.
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Their property taxes and homeowner’s insurance policy are expected to cost $3,125 per year.
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Their best estimate of the interest rate on their mortgage is 7.5%, and they are interested in obtaining a 15-year loan.…
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PFIN 7:STUDENT EDITION-TEXT
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- A couple wants to purchase a new house and feel that they can afford a mortgage payment of $600 a month. They are able to obtain a 30-year 7.4% mortgage (compounded monthly) but must put down 20% of the cost of the house. Assuming that they have enough savings for the down payment, how expensive a house can they afford? The couple can afford a house that costs up to $ ☐ . (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)arrow_forwardYour classmate tells you the details of the great deal he got on his mortgage: 30-year 1.1% fixed rate with a 20% down payment a.)If his new home costs $136,000, what is his down payment? b.)How much is he going to borrow to buy the house (assuming he only has the money to make the down payment from the previous part)? c.)Use Excel’s PMT function to determine how much his monthly payments would be. d.)How much will he pay in interest over the lifetime of this mortgage?arrow_forwardYou are thinking about buying a house.You find one you like that costs $200,000. You learn that your bank will give you a mortgage for $160,000 and that you would have to use all of your savings to make the down payment of $40,000. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $950 per month. Is $950 the cost of owning the house? What important factor(s) have you left out of your calculation of the cost of ownership, if any?arrow_forward
- The Potters want to buy a small cottage costing $119,000 with annual insurance and taxes of $760 and $2900, respectively. They have saved $11,000 for a down payment, and they can get a 6%, 10-year mortgage from a bank They are qualified for a home loan as long as the total monthly payment does not exceed $1000. Are they qualified? What is the total monthly payment?arrow_forwardHarriet Marcus is concerned about the financing of a home. She saw a small cottage that sells for $74,000. Assuming that she puts 20% down, what will be her monthly payment and the total cost of interest over the cost of the loan for each assumption? (Use the Table 15.1) Note: Do not round intermediate calculations. Round your answers to the nearest cent. Monthly payment Total cost of interest a. 25 Years, 4.75% $337.51 $42,053.00 b.25 Years, 5.25% c. 25 Years, 5.50% $363.54 $49,862.00 d. 25 Years, 5.75% e. What is the savings in interest cost between 4.75% and 5.75%? Note: Round your answer to the nearest dollar amount. Interest cost: f. If Harriet uses 30 years instead of 25 for both 4.75% and 5.75%, what is the difference in interest? Note: Use 360 days a year. Round your answer to the nearest dollar amount. Interest difference: TABLE 15.1 Amortization table (mortgage principal and interest per $1,000) Rate Interest Only 10 Year 15 Year 20 Year 25 Year…arrow_forwardD Lisa would like to buy some furniture for the new home. Good Home Furniture offered her the maximum payment credit for the furniture she can buy of $50 a week for one year. The anual interest rate of that commercial loan is 8.5%, assuming compounding weekly. How much furniture can Lisa allord to purchase using the credit offered by the store?arrow_forward
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