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Suppose you take out a 20-year mortgage for a house that costs $368851. Assume the following: · The annual interest rate on the mortgage is 4%. . The bank requires a minimum down payment of 14% at the time of the loan. The annual property tax is 2.2% of the cost of the house. The annual homeowners insurance is 0.6% of the cost of the house. . · The monthly PMI is $78 Your other long-term debts require payments of $837 per month. If you make the minimum down payment, what is the minimum gross monthly salary you must earn in order to satisfy the 28% rule and the 36% rule simultaneously? Round your answer to the nearest dollar.

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Answer #1

36% rule says that home loan EMI (Equal Monthly Instalments) shall not exceed 36% of monthly gross income of an individual. This percentage gets decreased if the individual becomes older to reach 28% in place of 36%. It means that gross monthly income shall be earned to cover expenses incl EMIs but with the restiction that the EMI shall not exceed 36% or 28% of the monthly income as the case may be. So, to calculate the minimum gross monthly salary that must be earned in order to satisfy the 28% rule and the 36% rule simultaneously, EMI payable on the loan shall be first calculated as follows: 0.33%-4%/12--> Annual rate is converted into monthly rate Effective Monthly Rate, RATE Number of months of loan, NPER Loan amount, PV Bal. of loan account at the end, FV Interest compounding type, TYPE EMI payable on the loan 240 [20 years x 12 months] $317,211.86 [$368,851 x( 1-14%)] $0 [Loan will be paid-off fully when the loan term expires] 0 0 if compounding made at the end of each month; 1 if made at the beginning of each monthl $1,922.24 [Ref: NOTE] Now minimum gross monthly income to satisfy rule 36% and 28% simultaneously can be calculated by adding 36% to total monthly expenses including EMI $1,922.24 $8,114.72 $2,213.11 $78.00 $837.00 $13,165.07 $4,739.43 $17,904.49 [As calculated abovel [$368,851 x 2.2%) [$368,851 x 0.6%) EMI payable on the loan Monthly property tax Monthly homeowners insurance Monthly PMI Other monthly long-term debts pmnt. Total monthly commitments payable Add: Min. addition required at 36% Minimum monthly income required [$13,165.07 x 36%)

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