Challenge question I Tyler wants to buy a beach house as part of his investment

Question

Challenge question I Tyler wants to buy a beach house as part of his investment portfolio. After searching the coast for a nice home, he finds a house with a great view and a hefty price of $4,500,000. Tyler will need to borrow from the bank to pay for this house. Mortgage rates are based on the length of the loarn and a local bank is advertising fifteen-year loans with monthly payments at 7.125%, twenty-year loans with monthly payments at 7.25%, and thirty-year loans with monthly payments at 7.375%. What is the monthly payment of principal and interest for each loan? Tyler believes that the property will be worth $5,500,000 in five years. Ignoring taxes and real estate commissions, if Tyler sells the house after five years, what will be the difference in the selling price and the remaining principal on the loan for each of the three loans?

Explanation / Answer

The monthly payment for principal and interest for each month is basically the EMI that tyler has to pay: So after doing the EMI calcuations we get the following EMIs for loans 1,2,3 respectively as given:

$ 40,762.40 $ 35566.92 $ 31,080.38

Now if he sells the house after 5 years then for the end month for 5th year i.e 60th period the EMI would not be paid.

for loan 1: remaining principal = 3511229.02 Difference = 5500000 -   3511229.02 = $ 1988771.98

for loan 2: remaining principal = 3908150.33. Difference = 5500000 - 3908150.33 = $ 1591850.67

for loan 3: remaining principal = 4257378.55.  Difference = 5500000 - 4257378.55 = $ 1242621.45

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