Question

In 2015 the Smiths purchased a home for $250,000 with a loan of $200,000 at 4% for 30 years.

In 2025 the Jones purchased the home for $350,000 but were able to assume the Smith's existing mortgage (the Jones' just took over the remainder of the existing loan).

The Jones' can will also obtain a new loan at 30 years, 9.5% fixed with a limit of an 80% total loan to value (of all debt combined).

If the Jones' can not assume the old loan, they will obtain a new loan at 80% LTV, 30 years, 9.5%.

What is the balance of the loan the Jones' will assume in 2025?

If the Jones' are able/willing to assume the old loan, what is the addition loan amount the Jones' will need to borrow in 2025?

If the Jones' assume the old loan what will be the total monthly payment for the Jones' on their new house?

If the Jones' were to assume this mortgage and hold this home for 30 years, what would be their monthly loan payment per month in year 22 of their ownership?

If the Jones' could not assume the prior mortgage, what would they pay as their monthly payment?

If the Smith's could increase the home price to make the Jones' indifferent (meaning the Jones' monthly payment would be exactly the same in either scenario) to assuming the loan with an increased purchase price or paying a lower price at the prevailing rate and terms, what would that higher purchase price be?

Answer 1

1. If the Jones' can not assume the old loan, they will obtain a new loan at 80% LTV, 30 years, 9.5%.What is the balance of the loan the Jones' will assume in 2025?

Answer: As Jones will not assume the Old Loan the amount that will be borrowed is ($350000+$151907.40)*0.80=$401525.90

Reference for $151907.40 is in the image given below:

Using the PMT Function in Excel insert the data as given in the question and then type =-pmt(and insert the figures respectively you will get $11566.02) post that create a table and insert $200000 in period 1, Interest will be 1^st figure shown in balance i.e. $200000*4% and principal paid is PMT minus Interest.

2.If the Jones' are able/willing to assume the old loan, what is the addition loan amount the Jones' will need to borrow in 2025?

Answer: $350000*0.80(LTV)=$280000 is the additional loan amount, as they have already assumed the old loan so it was ignored only the additional amount was considered.

3.If the Jones' assume the old loan what will be the total monthly payment for the Jones' on their new house?

Answer: Add $11566.02+28470.56, Total: $40036.58

4.If the Jones' were to assume this mortgage and hold this home for 30 years, what would be their monthly loan payment per month in year 22 of their ownership?

Answer: monthly payment is $28470.56 shown above as after Year 2044 the old loan is over, the 22^nd year is shown in period 46 if you use excel.

5.If the Jones' could not assume the prior mortgage, what would they pay as their monthly payment?

Answer: $40827.39, the total of $401525.92 was taken as Principal,Interest was 9.5%,No. Of Years:30

N	30
I/Y	9.5%
P	$ 4,01,525.92
PMT	$     40,827.39

6.If the Smith's could increase the home price to make the Jones' indifferent (meaning the Jones' monthly payment would be exactly the same in either scenario) to assuming the loan with an increased purchase price or paying a lower price at the prevailing rate and terms, what would that higher purchase price be?

Answer: Using Back Calculation in Excel if you add the differnce between $40827.39-$40036.58 with $28470.56 then you will get the desired figure.

N	30		30
I/Y	9.5%		9.50%
P	280000		₹ 2,87,777.39
PMT	$ 28,470.56		$     29,261.37