Question

Laila wants to secure a 20-year mortgage and knows she can afford a monthly mortgage payment of $2,500. Her father-in-law will gift her the down payment at 20% of the selling price. The current mortgage rates are 3.3% compounded monthly. (a) How much can Laila afford to finance on her home? (b) What is the selling price of the home that Laila should be looking at?

Answer 1

Explanation:

(a)

Monthly payments of a period of 20 years will be :

20 ×12( months in each year) = 240 payments

$2500 × 240 = $600 000

So Lalla can afford to finance $600 000

(b) A = P (1 + i) ^n

But A is the total amount of the mortgage calculated above and P is the amount that will be put into the mortgage after the 20% deposit

P = A ÷ ( 1+ i) ^n

P = 600000÷ ( 1+(3.3/1200)) ^240

P = 310391. 839

P = $310, 391.84

Selling price :

20% of X = 310 391. 84

X = 1551959.193

Therefore the selling price is $1 551 959, 19

Answer 2

a. $437,029.08

b. $546,411.35

Explanation:

a) To calculate how much Laila can afford to finance on her home, we can use the formula for a standard fixed-rate mortgage:

P = M * ((1 + r)^n) / (((1 + r)^n) - 1)

where

P = total mortgage amount

M = monthly mortgage payment

r = monthly interest rate (expressed as a decimal, 3.3%/12 = 0.00275)

n = total number of payments (20 years x 12 payments per year = 240)

In this case, P = 2500 * ((1 + 0.00275)^240) / (((1 + 0.00275)^240) - 1) = $437,029.08

b) To find the selling price of the home Laila should be looking at, we can use the information provided about her down payment. Since her father-in-law will gift her 20% of the purchase price, the down payment will be 20% of the home's selling price. We can represent this information with the equation:

Selling Price = Mortgage Amount / (1 - Down Payment %)

in this case :

Selling Price = 437,029.08 / (1- 0.2) = $546,411.35