EBK PFIN
6th Edition
ISBN: 8220103648844
Author: Billingsley
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 6, Problem 5FPE
Summary Introduction
To calculate: The amount of home equity credit line that can be obtained by Person A and Person LP and the amount of tax deductible interest.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Problem: Your cousin and her partner have a combined gross income of $10,111 and monthly expenses totaling $3,205. They plan to buy a house with a mortgage whose monthly PITI will be $2,000.
(a) If they do not qualify for an FHA mortgage, by how much should they reduce their monthly expenses in order to be eligible? (Set up an equation and solve it.)
Sean and Amy Anderson have a home with an appraised value of $180,000 and a mortgage balance of only $90,000.
Given that an S&L is willing to lend money at a loan-to-value ratio of 75%, how big a home equity credit line can Sean and Amy obtain?
How much, if any, of this line would qualify as tax-deductible interest if their house originally cost $100,000?
Isaiah and Allison Burton have a home with an appraised value of $190,000 and a mortgage balance of only $95,000. Given that an S&L is willing to lend money at a loan-to-value ratio of 70 percent, how big of a home equity credit line can Isaiah and Allison obtain?
$
How much, if any, of this line would qualify as tax-deductible interest if their house originally cost $100,000?
$
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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.arrow_forwardProblem: Your cousin and her partner have a combined gross income of $10,111 and monthly expenses totaling $3,205. They plan to buy a house with a mortgage whose monthly PITI will be $2,000. (a) What is your cousin and her partner's combined housing expense ratio? (b) What is their total obligations ratio? (c) For what kind of mortgage can they qualify, if any? (d) If they do not qualify for an FHA mortgage, by how much should they reduce their monthly expenses in order to be eligible? (Set up an equation and solve it.)arrow_forwardRonald and Samantha Brady recently had their condominium in Port Isaac appraised for $323,600. The balance on their existing first mortgage is $154,720. If their bank is willing to loan up to 75% of the appraised value, what is the amount (in $) of credit available to the Bradys on a home equity line of credit? ______$arrow_forward
- Suppose you have just purchased your first home for $550,000. At the time of purchase you could only afford to commit to a down payment of $55,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $535,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $508,000 (net proceeds), what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 25% of the loan.)arrow_forward4.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?arrow_forward2. Jimmy and Mickey are interested to purchase their first boat. They have decided to borrow the boat's purchase price of $100,000. The income tax bracket is 28%. There are two choices: They can borrow money from the boat dealer at an interest rate of 8% or they could take a second mortgage of $100,000 on their home. The home loan rate is 9.2%. If they borrow from the boat dealer the interest will not be tax deductible, but the mortgage will be tax deductible. a) Calculate the after-tax cost of borrowing from the boat dealer. b) Calculate the after-tax cost of borrowing through the second mortgage. c) Which source is less costly for the family?arrow_forward
- 3) The Johnsons have accumulated a nest egg' of $40,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $2400/month in monthly payments toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $3000. If local mortgage rates are 5.5%/year compounded monthly for a conventional 30-year mortgage, what is the price range of houses that they should consider? 'A nest egg is a substantial sum of money or other assets that have been saved or invested for a specific purpose.arrow_forwardDonald and Alex have a combined gross monthly income of $5500. They want to buy a house in a neighborhood where the average monthly heating cost is $200 and monthly property taxes are $325. a) Calculate the maximum monthly mortgage payment they can afford, based on the gross debt service ratio. Show your work. b) Based on the maximum monthly mortgage payment in a), their bank has offered them a 25 year mortgage at an interest rate of 3.5%, compounded semi-annually. If they saved $20,000 for a down payment, what would be the maximum house price they can afford? Show your work.arrow_forwardYour 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?arrow_forward
- Andy's yearly income is $40,000. What would Andy's debt load be on a $15,000 personal loan? Would Andy's debt load follow the guidelines of the 20/10 rule? Provide a reason for Your answer.arrow_forwardusing the maximum ratios for a conventional mortgage, how big a monthly payment could one afford if theor gross income is $4,000? Would it make a difference if he already had a car payment of $750?arrow_forwardYou have just inherited $30,000 tax free from your grandfather's estate. You currently have: no savings or retirement; two small credit card balances of $1,200 and $1,650 at 14.99%; an auto loan of $15,350 at 3.69%; and a mortgage with an unpaid balance of $147,500 at 4.25%. Research Dave Ramsey's 7 Baby Steps. If you follow Dave's plan, what should you do with your money?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage LearningPfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning