Question

In this question, an amortization table is given. In this situation, you want to take out a 12 year loan for $215,000. The current interest rate is 5.75%, and you will make monthly payments.

1. Lets assume that you can only afford to pay $2,400 a month. With the same interest rate above, calculate the maximum you can borrow. Hint: use what-if analysis.

Loan Terms Loan Amoritization Table Borrowed$215,000 Rate Term Payment$2,071.47 Principal Interest PaymentPayment Loan 0.48% 144 (monthly) (payments) (principal and interest) Pmt Num 0 Balance 215,000.00 $1,032.00 $1,039.47 $213,960.53 $1,027.01$1,044.46 $212,916.07 1,022.00 $1,049.48 $211,866.59 $1,016.96 $1,054.51 $210,812.08 $1,011.90 $1,059.57 $209,752.50 1,006.81 $1,064.66 $208,687.84 $1,001.70 $1,069.77 $207,618.07 $996.57$1,074.91 $206,543.17 $991.41$1,080.07 $205,463.10 $986.22$1,085.25 $204,377.85 $981.01$1,090.46 $203,287.39 $975.78$1,095.69 $202,191.70 $970.52$1,100.95 $201,090.75 $965.24$1,106.24 $199,984.51 $959.93$1,111.55 $198,872.97 $954.59$1,116.88 $197,756.08 $949.23$1,122.24 $196,633.84 $943.84$1,127.63 $195,506.21 $938.43$1,133.04 $194,373.17 $932.99$1,138.48 $193,234.69 $927.53$1,143.95 $192,090.74 $922.04$1,149.44 $190,941.30 $916.52$1,154.95 $189,786.35 $910.97 $1,160.50 $188,625.85 $905.40$1,166.07 $187,459.78 $899.81$1,171.67 $186,288.12 $894.18$1,177.29 $185,110.83 $888.53$1,182.94 $183,927.89 $882.85$1,188.62 $182,739.27 $877.15$1,194.32 $181,544.95 871.42 $1,200.06 $180,344.89 $865.66$1,205.82 $179,139.07 $859.87$1,211.60 $177,927.47 $854.05$1,217.42 $176,710.05 $848.21$1,223.26 $175,486.78 842.34$1,229.14 $174,257.65 $836.44$1,235.04 $173,022.61 b) How much total interest is paid at the end of the | $83,292.02 oan $910.97 Find the interest payment for the 24th month $1,160.50 Find the principal payment for the 24th month 10 12 13 14 15 16 17 18 19 20 21 e) What is the maximum amount you can borrow? 23 24 25 26 27 28 29 30 31 32 34 35 36 37

Answer 1

Calculation of maximum loan you can borrow
We can use the present value of annuity formula to calculate the maximum amount you can borrow.
Present value of annuity = P x {[1 - (1+r)^-n]/r}
Present value of annuity = maximum amount you can borrow = ?
P = Monthly payment = $2400
r = interest rate per month = 5.75%/12 = 0.004792
n = number of monthly payments = 12 years x 12 = 144
Present value of annuity = 2400 x {[1 - (1+0.004792)^-144]/0.004792}
Present value of annuity = 2400 x 103.8463
Present value of annuity = 249231.05
The maximum amount you can borrow = $2,49,231