Expert: Doug Ingram - 6/23/2005

Question
-can you show me one of them and guide me through the other 2 so i can understand. thank you so much

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Followup To
Question -
hi expert I was wondering if you can help me with these 3 finance problems. can you show me how to solve each one?


Rob and Laura wish to buy a new home. The price is $187,500 and they plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 10% fixed rate for 30 years, with monthly payments to begin in one month. (Ignore taxes.) Assuming they pay off the loan over the 30 year period as planned, what will the total
cost (principal + interest + down payment) of the house be?
  a.   $187,500
  b.   $271,996
  c.   $354,234
  d.   $473,760
  e.   $511,390

2 Rob and Laura wish to buy a new home. The price is $187,500 and they plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 10% fixed rate for 30 years, with monthly payments to begin in one month. (Ignore taxes.) What will the outstanding balance of the loan be after ten years assuming they
make the first 120 payments right on time?
  a.   $99,610
  b.   $135,467
  c.   $136,407
  d.   $139,144
  e.   $170,509

3 Rob and Laura wish to buy a new home. The price is $187,500 and they plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 10% fixed rate for 30 years, with monthly payments to begin in one month. (Ignore taxes.) Suppose Rob wants to pay off the loan in 15 years. How much extra must he pay each month
to do so?
  a.   $11.25
  b.   $201.99
  c.   $295.55
  d.   $311.55
  e.   $314.47

Answer -
I've been out of town.  If you will choose one of these, I'll answer it.
These look like homework questions, and you won't benefit if I do them all, but I'll be glad to help.


Answer
http://www.moneychimp.com/articles/finworks/fmmortgage.htm
(some calculations)

Payment = LoanAmt x (rate x (1 + rate) ^ months)/((1+rate)^months -1)

loanamt = 187500 - 20% (37,500) = $150000

rate = .10/12 (to make it monthly)
months= 360 (30 years)

payment = 1,316.36  (using the formula)

360 payments = 473,889.60
with downpayment = 473,889.60 + 37,500 = $511,389.60
(question 1 - the answer is E)

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Question 3
Substitute 180 for 360 in the equation
the payment is then 1,611.91 for 15 years (180 months)
the answer is (C) 1,611.91- 1,316.36 = $295.55

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Question 2

Substitute 240 for the months
You know the payment already - now find the Loanamount as if 10 years are gone

do some algebra:
if Payment = LoanAmt x (rate x (1 + rate) ^ months)/((1+rate)^months -1)
then
LoanAmt = Payment / (rate x (1 + rate) ^ months)/((1+rate)^months -1)
(divide both sides by the ratio part
Use 1,316.36 for the payment
and 240 for months
the result will be a loan amount of $136,407
which is (C) for 2.


HOWEVER, you won't really learn this unless YOU figure it out.  If this is homework, you have to know it, or you can't pass the test.