question archive Tom and Nancy want to buy a house in a particular neighborhood
Tom and Nancy want to buy a house in a particular neighborhood
Subject:EconomicsPrice:5.87 Bought7
Tom and Nancy want to buy a house in a particular neighborhood. they have two children ages 1 and 4. The average price home in this neighborhood runs about $350,000. Together their family income is $100,000. They have saved $75,000. The home they want to purchase costs $300,000. Taxes on the home run $3.00 per $100 of assessed value of the home. For new homes the assessed value is equal to 75% of the purchase price. Insurance runs half of one percent of the purchase price of the home. An Adjustable Rate Mortgage (ARM) requires a 10% down payment. Conventional loans require 20% down payment.
Interest for an ARM currently is 4.5 %. The conventional loans are 5.25% today.
Compute the per month cost including interest, taxes and insurance (use above formula to get the taxes and insurance cost) for a ARM.
What will their down payment be? ____________________________________
What will the cost of insurance be per month? ________________________
What will their taxes be per month?____________________________________
What will their principal and interest be per month?__________________
What is their total monthly payment going to be including everything?________________________
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Answer:
1.) Down Payment : $30,000
2.) Insurance : $125
3.) Taxes : $562.5
4.) Principal and Interest : $1,368.05
5.) Total : $2,055.55
Step-by-step explanation
1.) Down Payment :
As we are going with ARM, down payment will be 10% of the purchase amount.
So, 10% of $300,000 = $30,000
2.) Cost of insurance:
Cost of insurance is 0.5% of $300,000 = $1,500 per annum.
So, 1500 / 12 = $125 per month
3.) Taxes per month:
Assessed value = 75% of purchased value = 75% of $300,000 = $225,000
Taxes = 3% of $225,000 = $6,750 per annum.
So, $6,750 / 12 = $562.5 per month.
4.) Principal and interest payment.
Loan amount = $300,000 - $30,000 = $270,000
Interest rate = 4.5% per annum. So, 4.5% / 12 = 0.375% per month and
Tenure = 30 years = 360 months
We can calculate payment amount in excel using inbuilt function 'PMT'.
We need to put value =PMT(0.00375, 360, 270000)
= $1,368.05 per month
5.) Total monthly payment = Taxes + Insurance + Principal and Interest
= $562.5 + $125 + $1,368.05
= $2,055.55 per month.
