The Taylors have purchased a $290,000 house. They made an initial down payment o

Question

The Taylors have purchased a $290,000 house. They made an initial down payment of $20,000 and secured a mortgage with interest charged at the rate of 5%/year on the unpaid balance. Interest computations are made at the end of each month. If the loan is to be amortized over 30 years, what monthly payment will the Taylors be required to make? (Round your answer to the nearest cent.) $ 1449.42 What is their equity (disregarding appreciation) after 5 years? After 10 years? After 20 years? (Round your answers to the nearest cent.) 5 years 5095.23 10 years 20 years Need HelpRead It Talk to a Tutor

Explanation / Answer

(i) Calculation of equity in year 5 - Rate = 5/12 = 0.416667 n = (30-5) x 12 = 300 PV = Monthly payment x [(1-(1+r)^(-n))/r] 1449.42 x [(1-(1+0.0041667)^(-300)/0.0041667] PV = 247937.85 Equity = 290000 - 247937.85 = 42062.15 (ii) Calculation of equity in year 10 - Rate = 5/12 = 0.416667 n = (30-10) x 12 = 240 PV = Monthly payment x [(1-(1+r)^(-n))/r] 1449.42 x [(1-(1+0.0041667)^(-240)/0.0041667] PV = 219623.82 Equity = 290000 - 219623.82 = 70376.18 (iii) Calculation of equity in year 20 - Rate = 5/12 = 0.416667 n = (30-20) x 12 = 120 PV = Monthly payment x [(1-(1+r)^(-n))/r] 1449.42 x [(1-(1+0.0041667)^(-120)/0.0041667] PV = 136653.27 Equity = 290000 - 136653.27 = 153346.73

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