QUESTION ONE
UseWorksheet 5.2andExhibit 5.6. Emma Sanchez is currently renting an apartment for $750 per month and paying $300 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and $4,400 in closing costs. Emma estimated the following costs as a percentage of the home's price: property taxes, 2.5 percent; homeowner's insurance, 0.5 percent; and maintenance, 0.7 percent. She is in the 25 percent tax bracket and does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Emma.
Assume Emma's security deposit is equal to one month's rent of $750. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years.
- Cost of renting.Round the answer to the nearest dollar.
$
- Cost of buying.Round the answer to to the nearest dollar.
$
- Emma should-Select-buyrentItem 3the home.
QUESTION TWO
Using the maximum ratios for a conventional mortgage, how big a monthly payment could the Ross family afford if their gross (before-tax) monthly income amounted to $3,000?
$
Would it make any difference if they were already making monthly installment loan payments totaling $350 on two car loans?
Maximum mortgage payment they could make would be $
QUESTION THREE
Calculating required down payment on home purchase
How much would you have to put down on a house with a selling price of $170,000 and an appraised value of $161,000 when the lender required an 80% loan-to-value ratio?
$
QUESTION FOUR
Financial Planning Exercise 7
Calculating monthly mortgage payments
| EXHIBIT 5.6 | A Table of Monthly Mortgage Payments (Monthly Payments Necessary to Repay a $10,000 Loan) |
| The monthly loan payments on a mortgage vary not only by the amount of the loan but also by the rate of interest and loan maturity. |
| LOAN MATURITY | | Rate of Interest | 10 Years | 15 Years | 20 Years | 25 Years | 30 Years | | 5.0% | $106.07 | $79.08 | $66.00 | $58.46 | $53.68 | | 5.5 | 108.53 | 81.71 | 68.79 | 61.41 | 56.79 | | 6.0 | 111.02 | 84.39 | 71.64 | 64.43 | 59.96 | | 6.5 | 113.55 | 87.11 | 74.56 | 67.52 | 63.21 | | 7.0 | 116.11 | 89.88 | 77.53 | 70.68 | 66.53 | | 7.5 | 118.71 | 92.71 | 80.56 | 73.90 | 69.93 | | 8.0 | 121.33 | 95.57 | 83.65 | 77.19 | 73.38 | | 8.5 | 123.99 | 98.48 | 86.79 | 80.53 | 76.90 | | 9.0 | 126.68 | 101.43 | 89.98 | 83.92 | 80.47 | | 9.5 | 129.40 | 104.43 | 93.22 | 87.37 | 84.09 | | 10.0 | 132.16 | 107.47 | 96.51 | 90.88 | 87.76 | | 10.5 | 134.94 | 110.54 | 99.84 | 94.42 | 91.48 | | 11.0 | 137.76 | 113.66 | 103.22 | 98.02 | 95.24 |
|
Note:To use: (1) Divide amount of the loan by $10,000, (2) find the loan payment amount in the table for the specific interest rate and maturity and (3) multiply the amount from Step 1 by the amount from Step 2. |
Find themonthlymortgage payments on the following mortgage loans using either your calculator or the table above.
- $80,000 at 6.5 percent for 30 years.Do not round intermediate calculations. Round the answer to the nearest cent.
$
- $105,000 at 5.5 percent for 20 years.Do not round intermediate calculations. Round the answer to the nearest cent.
$
- $95,000 at 5 percent for 15 years.Do not round intermediate calculations. Round the answer to the nearest cent.
$