Question

A certain family can afford a monthly mortgage payment of $1,340.00. With an APR of 5.25% per annum, what is the maximum mortgage amount they can afford if they prefer a 20-year amortization period?

Answer 1

Answer:

  $198,859.03

Step-by-step explanation:

The amortization formula is good for this. Fill in the given numbers and solve for the unknown.

 A = P(r/n)/(1 -(1 +r/n)^(-nt))

where A is the monthly payment, P is the principal amount of the loan, r is the annual interest rate, n is the number of times per year interest is compounded, and t is the number of years.

  1340.00 = P(0.0525/12)/(1 -(1 +0.0525/12)^(-12·20)) ≈ 0.00673844·P

  P ≈ 1340/0.00673844 ≈ $198,859.03

The family can afford a loan for $198,859.