Johnsons accumulated a nest egg of $40,000 to use as down payment toward a new home. Present gross income has them in high tax bracket, decided to invest min $2400/month in payments (for tax break). Financial obligations cannot exceed $3000/month. If local mortgage rates were increased to 8% for 30-year mortgage, how would this affect the price range of houses that the Johnsons should consider?
so we want the present value of 360 payments of 2400
at i = .08/12 = .006666... (I stored in calculator memory for more accuracy)
PV = 2400(1 - 1.006666..^-360)/.006666...
= 3270840.41
So with a downpayment of 40000 and a payment of 2400 Johnson could consider a house around
367 000 dollars ..... (367080.42)
If you want to know his limit with a payment of 3000 per month, repeat the above, simply replacing the 2400 with 3000 in the calculation, then adding 40000
To determine how the increase in mortgage rates would affect the price range of houses the Johnsons should consider, we need to calculate the maximum mortgage payment they can afford under the given financial circumstances.
First, let's calculate the maximum monthly mortgage payment the Johnsons can afford. They have a present gross income but are planning to invest $2400/month for tax breaks. So their available monthly income for mortgage payment is their present gross income minus the monthly investment:
Available Monthly Income = Present Gross Income - Monthly Investment
Available Monthly Income = Present Gross Income - $2400
Next, we need to calculate the maximum mortgage payment based on the available monthly income. To do this, we need to take into account the high tax bracket and the maximum allowed financial obligations. Typically, a conservative estimation is that the mortgage payment should not exceed 28% of the gross income, but we also need to consider the $3000/month limit for financial obligations.
Maximum Mortgage Payment = Available Monthly Income * 28% or $3000
Finally, we can use this maximum mortgage payment to calculate the price range of houses the Johnsons should consider. To do this, we use a mortgage affordability calculator or a mortgage amortization calculator.
For example, let's assume the new mortgage rate is 8% for a 30-year mortagage. Using a mortgage calculator, input the mortgage rate, loan term, and maximum mortgage payment to calculate the eligible loan amount.
The eligible loan amount will determine the price range of houses the Johnsons can consider, as the down payment will be subtracted from this amount.
Please note that the calculations provided are a general guideline, and it's always recommended to consult with a financial advisor or mortgage specialist to get an accurate assessment of the price range suitable for your specific financial situation.