Question

Your parents are buying a house for $187,500. They have a good credit rating, are making a 20% down payment, and expect to pay $1,575/month. The interest rate for the mortgage is 4.65%. What must their realized income be before each month?
Be sure to include the following in your response:

the answer to the original question
the mathematical steps for solving the problem demonstrating mathematical reasoning

Answer 1

$187,500 is cost of house. 20%, or $37,500 is the down payment. The loan amount would be $187,500 - $37,500 = $150,000. If we assume the annual rate of the loan is 4.65% Then the monthly rate would be 4.65%/12 = 0.3875% If the loan is $150,000, the interest is 0.3875% The interst for the first month is $150,000 * 0.3875% = $581.25. You stated that their payment is $1,575. So the amount that pays off the loan is $1,575 - $581.25 = $993.75. At the end of the month, they owe $150,000 - $993.75 = $149,006.25 For the second month, the amount of the payment that goes towards intrest is $149,006.25 * 0.3875% = $577.40. and the amount that goes towards the loan is $997.60. At the end of the second month they owe $148,008.65. Regarding realized income, we recommend a monthly loan payment not to exceed 28% of the monthly income. So if a payment of $1,575 is 28% of Gross, then the math is : $1,575 = 0.28*Gross. Gross = $5,625 monthly. About $67,500 annually. About $33.75 an hour.