A potential homebuyer has an annual income of $40,000.00. Assuming an affordable monthly mortgage payment of $850.00, what is the affordable mortgage amount at an interest rate of percent for 15 years?
a) $127,820
b) $94,655
c) $91,314
d) $81,626
What percent interest is this homebuyer paying?
Sorry I left that out - 7 percent.
This site lets you figure the amount of payments based on the amount of the loan, interest rate, and time.
http://www.bankrate.com/brm/mortgage-calculator.asp?unroundedPayment=853.8868573098035&loanAmount=95000.00&nrOfYears=15&nrOfMonths=180&interestRate=7.00&startMonth=4&startDay=5&startYear=2008&monthlyPayment=853.89&monthlyAdditional=0&yearlyAdditional=0&yearlyAdditionalMonth=4&oneAdditional=0&oneAdditionalMonth=4&oneAdditionalYear=2008&paidOffDate=May+5%2C+2023&submit.x=39&submit.y=7
monthly rate = .07/12
= .0058333
present value = 850(1 - 1.0058333^-180)/.0058333
= 94568
To find the affordable mortgage amount at a given interest rate for 15 years, we need to determine the maximum mortgage payment that can be made each month, based on the homebuyer's annual income.
Step 1: Calculate the monthly income
Divide the annual income by 12 to get the monthly income.
$40,000 / 12 = $3,333.33 (rounded to the nearest cent)
Step 2: Determine the maximum affordable mortgage payment
Based on the given information, the maximum affordable monthly mortgage payment is $850.00.
Step 3: Calculate the affordable mortgage amount
To find the affordable mortgage amount, we need to determine the loan amount that corresponds to the maximum affordable mortgage payment at a given interest rate and term. In this case, the term is 15 years.
To calculate the affordable mortgage amount, we can use an online mortgage calculator or a formula such as the Mortgage Payment Formula.
Using the Mortgage Payment Formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1 ]
Where:
M = Monthly Mortgage Payment
P = Principal (Loan Amount)
i = Monthly Interest Rate (Annual Interest Rate / 12)
n = Number of Monthly Payments (Term in Years * 12)
Let's calculate the affordable mortgage amount:
Rearrange the formula to solve for the loan amount (P):
P = M * [ (1 + i)^n - 1 ] / [ i(1 + i)^n ]
P = $850 * [ (1 + (interest rate / 12))^15*12 - 1] / [ (interest rate / 12) * (1 + (interest rate / 12))^15*12 ]
Substituting the given interest rate (in percent), which is missing from the question, and calculating the options, we find:
a) $127,820
b) $94,655
c) $91,314
d) $81,626
Therefore, the correct answer cannot be determined without knowing the interest rate.