Rebecca and Tom Payton have decided to buy a home that costs $200,000. The Paytons can put down 20% of the home's price. They have applied for a 15-year, 9% FRM to finance the balance. They Paytons have a combined gross annual income of $70,000.
A.)$ 200,000
B.)$ 174,400
C.)$ 292,108
I've asked this before, but the answer someone else got wasn't one of the options.
What is your question?
How much will the Paytons pay to satisfy their mortgage loan, if they make all the payments on time for the amount being financed?
You have not asked a question. What are the choices supposed to represent?
^^ previous post. SORRY.
They start the mortgage owing $160,000. For a ball park estimate, they will have an average balance of about 100,000 for 15 years, and will have to pay about 135,000 in interest, plus the principle. That would make a total of 295,000. (c) is the closest to that. There are formulas you could use fr the exact value, but since this is multiple choice, a quick estimate makes more sense.
That was a very close estimate!
Using the formula, I calculated:
Pt = 292108.80,
Monthly = 1622.83,
Int = 132108.78.
FORMULA:Pt =(Po*r*t) / (1 - (1 + r)^-t
Pt = Pay-back amt.
Po = Loan amt.
r = Monthly int rate expressed as a decimal.
t = Length of loan(15 years).
To determine the answer, we need to calculate how much the Paytons can borrow based on their income and financial circumstances.
First, let's calculate their down payment. The down payment is 20% of the home's price, which is $200,000. Therefore, the down payment is 0.20 * $200,000 = $40,000.
Next, we need to calculate the loan amount. The loan amount is the home's price minus the down payment. Therefore, the loan amount is $200,000 - $40,000 = $160,000.
Now, let's calculate the monthly mortgage payment for the 15-year, 9% fixed-rate mortgage (FRM) on the loan amount of $160,000. We can use a mortgage amortization formula or an online mortgage calculator to find the monthly payment.
Using a mortgage calculator, we can input the loan amount, interest rate, and loan term to find the monthly payment. For the given values, the monthly payment is approximately $1,622.67.
To determine the maximum loan they can afford, we should consider the Debt-to-Income (DTI) ratio. Lenders typically use the DTI ratio to assess a borrower's ability to make mortgage payments.
The DTI ratio is the total monthly debt payments divided by the gross monthly income. In this case, we have the monthly mortgage payment as the only debt. Therefore, the DTI ratio is $1,622.67 / ($70,000 / 12) ≈ 0.2782 or 27.82%.
Lenders typically have maximum DTI ratio requirements. The maximum DTI ratio can vary but is often around 43% for conventional loans. So, let's assume a maximum DTI ratio of 43%.
To calculate the maximum loan amount based on the DTI ratio, we can rearrange the DTI ratio formula to find the maximum allowable monthly debt payments:
Maximum allowable monthly debt payments = DTI ratio * gross monthly income = 0.43 * ($70,000 / 12) ≈ $2514.17
Now, let's calculate the maximum loan amount based on the monthly mortgage payment and the maximum allowable monthly debt payments:
Maximum loan amount = Maximum allowable monthly debt payments / monthly mortgage payment ≈ $2514.17 / $1,622.67 ≈ 1.549
To find the maximum loan amount in dollars, multiply this ratio by the monthly mortgage payment:
Maximum loan amount in dollars = 1.549 * $160,000 ≈ $247,822.26
Since the Paytons' loan amount is $160,000, which is less than the maximum loan amount of $247,822.26, they can afford the loan.
Therefore, the correct answer is B.) $174,400.
It's possible that the person who gave you the different answer made a calculation error or used different assumptions. It's important to input all values correctly and double-check the calculations when performing these types of calculations.