H2 - loan. (iii). Work out the maximum amount of loan for...

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S CHOOL OF B USINESS A DMINISTRATION U NIVERSITY OF C ALIFORNIA AT R IVERSIDE B US 106 A VINASH V ERMA H OMEWORK 2 D UE A PRIL 20, 2011 You earn a yearly gross salary of $144,000. The 30-year fixed rate mortgage loan rate is 4.98% per year. Lenders require that the mortgage loan is at most 75% of the value of the house and that monthly payment on the mortgage loan is at most 27% of the borrowers’ monthly gross income. Interest on mortgage loans is deducted from income before tax is computed on it, and over the next 30 years you expect that your income will be taxed at 33%. (i). Work out your monthly gross income, and work out C , the maximum monthly payment. (ii). Work out r M , the monthly interest rate you will use to compute the amount of the
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Unformatted text preview: loan. (iii). Work out the maximum amount of loan for which you can qualify given your income. (iv). Work out the value of the most expensive house you can finance with a 30-year fixed rate mortgage loan, and the amount of down payment you will be required to put up. (v). Assuming that the house is bought on May 1, 2011 and the first monthly payment is made on June 1, 2011, work out the amount that you will save in taxes in the year 2025. (vi). Assuming that the value of the house remains unchanged, work out the percentage of your stake in the house at the end of the year 2016....
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