Chapter 5, Solutions Cornett, Adair, and Nofsinger

4&5-7 House Appreciation and Mortgage Payments Say that you purchase a house for $200,000 by getting a mortgage for $180,000 and paying a $20,000 down payment. If you get a 30-year mortgage with a 7 percent interest rate, what are the monthly payments? What would the loan balance be in 10 years? If the house appreciates at 3 percent per year, what will be the value of the house in 10 years? How much of this value is your equity?

Use equation 5-9 to calculate your monthly payment:

In ten years, you will have 240 payments of $1,197.54 left to pay. The present value can be calculated using equation 5-4:

An appreciation of 3% per year will result in a forecast future value of the home using the original purchase price in equation 5-1:

The amount of equity is the difference between the home’s value and the outstanding balance on the mortgage:

Equity = $268,783.28 - $154,461.17 = $114,321.57

4&5-8 House Appreciation and Mortgage Payments Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 7 percent interest rate, what are the monthly payments? What would the loan balance be in 5 years? If the house appreciates at 4 percent per year, what will be the value of the house in 5 years? How much of this value is your equity?

Use equation 5-9 to calculate your monthly payment:

In ten years, you will have 120 payments of $1,213.42 left to pay. The present value can be calculated using equation 5-4: