Question

Problem 2 - To offset the cost of buying a $75,000 house, a couple borrowed $12,500 from their parents at 6% nominal interest, compounded monthly. The loan from their parents is to be paid off in five years in equal monthly payments. The couple has saved $11,250. Their total down payment is therefore $12,500 + 11,250 = $23,750. The balance will be mortgaged at 9% nominal interest, compounded monthly for 30 years. Find the combined monthly payment (monthly payments to parents + monthly payments to bank against mortgage) that the couple will be making for the first five years.

Answer 1

Payment to parents = 12,500 (A/P, 0.5%, 60) = 12500 * 0.0193 = 241.66

Borrowed from bank = [75,000 - 23,750] = 51,250

Payment to bank = 51,250 (A/P, 3/4%, 360) = 51,250 * 0.0080 = 412.37

Total monthly payments for first five years = Payment to parents + Payment to bank = 241.66 + 412.37 = 654.03