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. Answer the following questions about the Payton's decision.
What is the maximum amount the Paytons should pay each month, according to the 28% rule
I'd say that it would be
0.28 * 70000/12
The 28% rule is a guideline commonly used by lenders to assess how much a person or couple can afford to pay for a mortgage. According to this rule, the maximum amount the Paytons should pay each month for their mortgage should not exceed 28% of their gross monthly income.
To calculate the maximum monthly payment, we first need to determine the Paytons' combined gross monthly income. We can do this by dividing their annual income by 12 (since there are 12 months in a year).
Gross Monthly Income = Gross Annual Income / 12
= $70,000 / 12
= $5,833.33 (approximately)
Now, we can calculate the maximum monthly payment using the 28% rule:
Max Monthly Payment = Gross Monthly Income * 28%
= $5,833.33 * 0.28
= $1,633.33 (approximately)
Therefore, according to the 28% rule, the maximum amount the Paytons should pay each month for their mortgage is approximately $1,633.33.