A couple bought a $300,000 home four years ago using a 15 year loan with an annu

Question

A couple bought a $300,000 home four years ago using a 15 year loan with an annual rate of 4.5% and a 20% down payment. What would be their monthly payments? today they want to use a home equity line of credit to pay off some credit card debt. How much equity do they have assuming the house is now worth $310,000? what are the trade offs of using the line of credit to pay off the credit cards? A couple bought a $300,000 home four years ago using a 15 year loan with an annual rate of 4.5% and a 20% down payment. What would be their monthly payments? today they want to use a home equity line of credit to pay off some credit card debt. How much equity do they have assuming the house is now worth $310,000? what are the trade offs of using the line of credit to pay off the credit cards?

Explanation / Answer

Price of the Home in the beginning = $300000

Down payment = 20% = $60000

Annual rate of interest = 4.5%

So, Monthly rate of interest = 4.5/12= .375% (R)

Time period = 15 years = 180 months    (n)

Now, as per the formula of present value of annuity

240000 = EMI*(1-1/ (1+R) ^n)/ R

240000 = EMI*(1-1/1.00375^180)/.00375 = EMI*130.72

EMI = 240000/130.72 = $1835.98 or $1836 approx

After 4 years, loan left for payment = $190875.13

Current Value of Home = $310000

Value of equity for payoffs = 310000 - 190875.13 = 119124.9

Credit card bill payment through this way increases the final loan amount. Loan amount will be paid in long term, so more interest will be paid to set off the additional loan. Otherwise credit limit will be decreased.

240000 Month EMI Principal Interest Loan Amount left for payment 1 1836 936 900 239064 2 1836 939.51 896.49 238124.49 3 1836 943.0331625 892.9668375 237181.4568 4 1836 946.5695369 889.4304631 236234.8873 5 1836 950.1191726 885.8808274 235284.7681 6 1836 953.6821195 882.3178805 234331.086 7 1836 957.2584275 878.7415725 233373.8276 8 1836 960.8481466 875.1518534 232412.9794 9 1836 964.4513271 871.5486729 231448.5281 10 1836 968.0680196 867.9319804 230480.4601 11 1836 971.6982747 864.3017253 229508.7618 12 1836 975.3421432 860.6578568 228533.4197 13 1836 978.9996762 857.0003238 227554.42 14 1836 982.670925 853.329075 226571.7491 15 1836 986.355941 849.644059 225585.3931 16 1836 990.0547758 845.9452242 224595.3384 17 1836 993.7674812 842.2325188 223601.5709 18 1836 997.4941092 838.5058908 222604.0768 19 1836 1001.234712 834.7652879 221602.842 20 1836 1004.989342 831.0106577 220597.8527 21 1836 1008.758052 827.2419477 219589.0947 22 1836 1012.540895 823.459105 218576.5538 23 1836 1016.337923 819.6620766 217560.2158 24 1836 1020.149191 815.8508094 216540.0666 25 1836 1023.97475 812.0252499 215516.0919 26 1836 1027.814655 808.1853446 214488.2772 27 1836 1031.66896 804.3310397 213456.6083 28 1836 1035.537719 800.462281 212421.0706 29 1836 1039.420985 796.5790146 211381.6496 30 1836 1043.318814 792.6811859 210338.3308 31 1836 1047.23126 788.7687404 209291.0995 32 1836 1051.158377 784.8416231 208239.9411 33 1836 1055.100221 780.8997792 207184.8409 34 1836 1059.056847 776.9431534 206125.7841 35 1836 1063.02831 772.9716902 205062.7557 36 1836 1067.014666 768.9853341 203995.7411 37 1836 1071.015971 764.9840291 202924.7251 38 1836 1075.032281 760.9677192 201849.6928 39 1836 1079.063652 756.9363481 200770.6292 40 1836 1083.110141 752.8898594 199687.519 41 1836 1087.171804 748.8281964 198600.3472 42 1836 1091.248698 744.7513021 197509.0985 43 1836 1095.34088 740.6591195 196413.7577 44 1836 1099.448409 736.5515912 195314.3092 45 1836 1103.57134 732.4286597 194210.7379 46 1836 1107.709733 728.2902671 193103.0282 47 1836 1111.863644 724.1363557 191991.1645 48 1836 1116.033133 719.966867 190875.1314

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