Activity 4.4.docx - 1 Calculating the Amount for a Home...

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1. Calculating the Amount for a Home Equity Loan. A few years ago, Michael Tucker purchased a home for $100,000. Today the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming Michael can borrow up to 80% of the market value of his home, what is the maximum amount he can borrow? $150,000 x .8 = $120,000 - $50,000 = $70,000 additional 2. Determining the Debt Payments-to-Income Ratio. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? Explain your answer. $2,000 - 400 -160 – 80 = 1360 $35 + 30 + 20 + 285 = 370 Debt payments to income ratio = 27.2 % No, because her debt to income ratio is over 20%. She should try to eliminate her debt so that is lower than the 20% threshold.
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