Answer question 1 and question 2: Sales price of a new home sold in US: 2007: $2
ID: 2789889 • Letter: A
Question
Answer question 1 and question 2:
Sales price of a new home sold in US: 2007: $240,300 2017: $319,700
Monthly average "commitment rate”(i.e. interest rate) on a 30-year fixed rate mortgage: 2007: 3.81 2017: 6.38
Question 1: Supposing a 20% down payment, what would be the size of the mortgage required to buy a house with the median price in September of 2007 and September of 2017?
Question 2: Based on the interest rates above and the mortgage amounts in question 1, what would be the monthly payment for a 30-year fixed rate mortgage in September of 2007 and September of 2017?
Explanation / Answer
Q1)
20% down payment
Mortgage in 2007 = (1-20%)*240300 = 192240
Mortgage in 2017 = (1-20%)*319700 = 255760
Q2)
2007
Monthly rate (r) = 3.81%/12 = 0.3175%
Number of payments(n) = 30*12 = 360
Monthly payment (PMT) = Mortgage * r / (1 - (1+r)-n )
PMT = 192240*0.3175% / (1 - (1+0.3175%)-360 )
= 896.85
2017
Monthly rate (r) = 6.38%/12 = 0.5317%
Number of payments(n) = 30*12 = 360
Monthly payment (PMT) = Mortgage * r / (1 - (1+r)-n )
PMT = 255760* 0.5317% / (1 - (1+ 0.5317%)-360 )
= 1596.45