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Consider a home buyer planning to purchase a house that is currently worth $ 4 0 0 , 0 0 0 . The buyer will

Consider a home buyer planning to purchase a house that is currently worth $400,000. The buyer will pay
$100,000 today as a down payment on the house and borrow from a bank the rest of the purchase price.
a) The bank currently offers a 30-year mortgage at the interest rate of 6.6% per year (this is the average
mortgage rate as of February 2024). What should be the monthly payment on the mortgage?
Hint 1. The interest rate of 6.6% per year is equivalent to 0.55% per month.
Hint 2: There will be 360 monthly payments on the 30-year loan.
b) The buyer regrets that the buyer did not purchase a few years ago when the interest rate was Low. Sup-
pose the mortgage rate is 2.8% per year (this was the average rate as of October 2020) on the 30-year
mortgage. Then, what would be the monthly payment on the mortgage?
Hint: The interest rate of 2.8% per year is equivalent to 0.233% per month.
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