Assume that inflation is 2.4% APR, compounded monthly

1. a. You are considering purchasing a new home. Your bank offers you a 30-year fixed rate mortgage at 4.8% APR, compounded monthly. You are willing to pay as much as $4,000 per month toward your mortgage. What is the maximum house price you can afford?

b. If you are only willing to pay $4000 a month over 20 years instead of 30 years, how does the price of the house you can afford change compared to the price in your previous answer? Explain

Sometimes, putting more money down to buy a house allows for a smoother sale process and/or a lower mortgage rate. Instead of borrowing to buy a house now you decide to wait and build up your savings to put an extra $100,000 down. How long will it take you to save $100,000 if you set aside $4,000 per month and your discount rate is 12%, compounded monthly?

Answer rating: 100% (QA)

a To calculate the maximum house price you can afford we need to determine the total mortgage payment you can make each month based on the 4000 limit ... View the full answer