Reference no: EM133071656

Analyze a home purchase for $550,000 using a $475,000 mortgage

#1: Assume you obtain a fixed-rate mortgage like the example in the "Affordable Housing" video. Assume the loan amount is $475,000. Assume it is a 30-year loan. It has a 4.75% APR. How much is your monthly payment? (Hint: You can use the "Excel PMT function" spreadsheet. If your answer is more than $3,000 you've made a mistake.)

#2: At the end of 30 years, when you make your last monthly payment and your mortgage is paid off, what is the total amount (in $) that you will have paid in interest? (Hint: You will have made 360 payments. Multiply 360 by the monthly payment $ amount you calculated in #1. Your total interest equals that number minus the amount of your loan.)

#3: Assume inflation is 3% per year. If the home you purchase today increases its value each year at the rate of inflation, what should the home you purchase today for $550,000 be worth in 30 years? (Hint: You can use the "Excel FV function" spreadsheet. If your answer is less than $1 million you've made a mistake.)

#4: How much will you still owe on your mortgage at the end of the 42nd month? Assume that the bank has received your monthly payment that month and credited it toward interest and principal appropriately. (Hint: You can use the "Amortization Schedule" spreadsheet. Make sure you're using the 42nd month, not the 42nd row of the spreadsheet! If your answer is more than $450,000 you've made a mistake.)

#5: Suppose you made monthly payments of $3,000 each month. How many months would it take to pay off your loan? (Hint: You can use the "Excel NPER function" spreadsheet. IMPORTANT: If you do this, make sure to tell the bank that you want the extra money you send in each month to pay down principal, not interest!)