Over the past 40 years, interest rates have varied widely. The rate for a 30-year mortgage reached a high of 14.75% in July 1984, and it reached 3.31%, in November 2012. A significant impact of lower interest rates on society is that they enable more people to afford the purchase of a home. We consider the purchase of a home that sells for $125,000. Assume that we can make a down payment of $25,000, so we need to borrow $100,000. We assume that our annual income is $45,000 and that we have no other debt. We determine whether we can afford to buy the home at the high and low rates. What is our monthly income? Enter all answers rounded to the nearest cent. monthly income: $ Lending agencies usually require that no more than 28% of the borrower's monthly income be spent on housing. How much does that represent in our case? 28% of monthly income: $ The amount we will spend on housing consists of our monthly mortgage payment plus property taxes and hazard insurance. Assume that property taxes plus insurance total $260 per month, and subtract this from 28% of our monthly income to determine what monthly payment we can afford. affordable monthly payment: $ Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is at the historic high of 14.75%. Can we afford the home? affordable mortgage with high interest: $ Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is 3.31%. affordable mortgage with low interest: $ In which situations can the $100,000 be afforded? A)With high interest only B)With low interest only C)Only if there is no interest charged D)With both high interest and low interest What is the difference in the amount we can borrow between the rates used previously?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Over the past 40 years, interest rates have
varied widely. The rate for a 30-year
mortgage reached a high of 14.75% in July
1984, and it reached 3.31%, in November
2012. A significant impact of lower interest
rates on society is that they enable more
people to afford the purchase of a home. We
consider the purchase of a home that sells
for $125,000. Assume that we can make a
down payment of $25,000, so we need to
borrow $100,000. We assume that our
annual income is $45,000 and that we have
no other debt. We determine whether we
can afford to buy the home at the high and
low rates.
What is our monthly income?
Enter all answers rounded to the nearest
cent.
monthly income: $
Lending agencies usually require that no
more than 28% of the borrower's monthly
income be spent on housing. How much
does that represent in our case?
28% of monthly income: $
The amount we will spend on housing
consists of our monthly mortgage payment
plus property taxes and hazard insurance.
Assume that property taxes plus insurance
total $260 per month, and subtract this from
28% of our monthly income to determine
what monthly payment we can afford.
affordable monthly payment: $
Using your previous answer, determine how
much we can borrow if the term is 30 years
and the interest rate is at the historic high of
14.75%. Can we afford the home?
affordable mortgage with high interest: $
Using your previous answer, determine how
much we can borrow if the term is 30 years
and the interest rate is 3.31%.
affordable mortgage with low interest: $
In which situations can the $100,000 be
afforded?
A)With high interest only
B)With low interest only
C)Only if there is no interest charged
D)With both high interest and low interest
What is the difference in the amount we can
borrow between the rates used previously?
Transcribed Image Text:Over the past 40 years, interest rates have varied widely. The rate for a 30-year mortgage reached a high of 14.75% in July 1984, and it reached 3.31%, in November 2012. A significant impact of lower interest rates on society is that they enable more people to afford the purchase of a home. We consider the purchase of a home that sells for $125,000. Assume that we can make a down payment of $25,000, so we need to borrow $100,000. We assume that our annual income is $45,000 and that we have no other debt. We determine whether we can afford to buy the home at the high and low rates. What is our monthly income? Enter all answers rounded to the nearest cent. monthly income: $ Lending agencies usually require that no more than 28% of the borrower's monthly income be spent on housing. How much does that represent in our case? 28% of monthly income: $ The amount we will spend on housing consists of our monthly mortgage payment plus property taxes and hazard insurance. Assume that property taxes plus insurance total $260 per month, and subtract this from 28% of our monthly income to determine what monthly payment we can afford. affordable monthly payment: $ Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is at the historic high of 14.75%. Can we afford the home? affordable mortgage with high interest: $ Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is 3.31%. affordable mortgage with low interest: $ In which situations can the $100,000 be afforded? A)With high interest only B)With low interest only C)Only if there is no interest charged D)With both high interest and low interest What is the difference in the amount we can borrow between the rates used previously?
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