Newlyweds Eric and Pamela have finally found the house that they have been looki
ID: 2442858 • Letter: N
Question
Newlyweds Eric and Pamela have finally found the house that they have been looking for and are anxious to make an offer. The 3 bedroom house is on the market for $156,100 and will require that the couple complete some repairs such as installing a new roof and replacing the deck in the back of the house. They estimate these repairs at about $15,000. The house is currently assessed at $150,000, however the real estate agent is confident that if they make the repairs, the market value of the house would increase to $175,000.a. Eric and Pamela have saved $12,000 for the down payment on the house. Based on the purchase price of $156,100, compute the monthly principal and interest payment on a 30 year mortgage at 6.25%.
Answer:
b. Find the total amount of interest that Eric and Pamela will pay over the 30 years of the mortgage.
Answer:
c. In order to pay the $15,000 for the necessary repairs to the house, the couple has a choice between two options:
Borrow the $15,000 from the bank at 8% interest, compounded quarterly for 5 years.
Increase the mortgage amount to include the $15,000, bringing the total amount financed to $159,100
Compute the total interest paid over the life of the loan for each of these options.
Answer Option A:
Answer Option B:
Explanation / Answer
a.
principal = price - down; $156,100 - $12,000) =$144,100
interestRate = (number / 100 ) / 12; (6.25/100)/12 = .00521 per month or .521%
months = loan.years * 12; 30* 12 = 360 months
payment = (principal * interestRate) / ( 1 - ( 1+interestRate ^ (-1*months) ) ) * 100 ) / 100;
Payment = (144,100 * 0.00521)/(1-(1+0.00521 ^(-1*360)))*100)/100
That is: $1703.52 per month
360 months of 1703.52= $613,266.15total dollars paid
The monthly principal and interest payment on a 30 year mortgage at 6.25% = $1703.52 per month
b. The total amount of interest that Eric and Pamela will pay over the 30 years of the mortgage.
$613,266.15 - $144,100 = $469,166.15 in interest paid
c.In order to pay the $15,000 for the necessary repairs to the house, the couple has a choice between two options:
Borrow the $15,000 from the bank at 8% interest, compounded quarterly for 5 years.
Total amount paid = $22,289.21
Total amount paid if they chose option a = $22,289.21 + $613,266.15 = $635,555.36 - $144,100 - 15,000 =
Option B = Total amount paid when Increase the mortgage amount to include the $15,000, bringing the total amount financed to $159,100 = $626,033.67 - $147,100 = $478,933.67
Calculated as part A changing vales 144,100 t0 147,100 (159,100 - 12000 = 147,100)
Option A is better.