Mortgage Example from Class on 7/7/2009
Given:
Annual Gross (pre-tax) Income
$144,000.00
Life of Mortgage Loan in Years
30
Frequency of Payments (number of payments in a year)
12
Tax Rate
34%
Assumed annual appreciation in real estate
4.50%
Quoted 30-year Fixed Rate Mortgage Rate (yearly)
5.36%
Rules of Thumb
Max(Loan to Value Ratio)
0.8
Max(Monthly Payment/Monthly Gross Income)
0.28
Questions:
1. What is the most expensive house you can buy?
2. What is the tax saved in 2016 (assume tax rate of 34%)?
3. What is your equity at the end of year 2025?
Intermediate Calculations
Monthly Gross Income
$12,000.00
0.44667%
$3,360.00
AF(r,n)=AF(0.447%, 360)
178.88
$601,034.13
$751,292.66
Number of Payments up to beginning of 2016
76
AF(r,n)=AF(0.447%, 360-76)
160.7375
$540,077.86
Number of Payments up to end of 2016
88
AF(r,n)=AF(0.447%, 360-88)
157.2686
$528,422.47
$11,655.40
Interest in 2016
$28,664.60
Tax Savings in 2016
$9,745.97
Number of Payments up to end of 2016
196
AF(r,n)=AF(0.447%, 360-196)
116.0878
$390,055.07
$1,541,849.17
Value of your equity
$1,151,794.10
r
M
, the monthly rate
C
, the [Maximum] Monthly Payment
L
, the [Maximum] Loan Amount
V
, the [Maximum] Value of the House
RP
76,
The Remaining Principal at the beginning of 2016
RP
88,
The Remaining Principal at the end of 2016
Repayment in 2016 = RP
76
- RP
88
RP
88,
The Remaining Principal at the end of 2016
V
196
, the value of the house at the end of 2025