Question

A couple can afford to make a monthly mortgage payment of $700. If the mortgage rate is 2% and the couple intends to secure a 30-year mortgage, how much can they borrow?

Answer 1

Answer:    $189,383.96

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Explanation:

• r = 0.02 = decimal form of 2% annual interest
• i = monthly interest rate
• i = r/12 = 0.02/12 = (2/100)/12 = 1/600.
• n = number of months = 12*30 = 360
• P = monthly payment = 700

We'll plug those items into the formula below.

L = loan amount

L = P*( (1+i)^n - 1)/( i*(1+i)^n )

L = 700*( (1+1/600)^360 - 1 )/( 1/600*(1+1/600)^360 )

L = 189,383.961539639

L = 189,383.96

The couple can afford to borrow at most $189,383.96