Question
Kendall is considering the purchase of a home. He has saved $20,000 for a down payment on a home and will finance the remainder of
Kendall is considering the purchase of a home. He has saved $20,000 for a down payment on a home and will finance the remainder of the purchase price with a home mortgage loan. Kendall currently rents an apartment for $900 per month and does not anticipate an increase in his monthly income. He wants to make sure that the monthly payment on his new home does not exceed $900, after-tax. Kendall has a marginal tax rate of 28 percent and an average tax rate of 22 percent. Assuming the monthly mortgage payment (before-tax) will be equal to one percent of the initial mortgage balance and the entire amount of each monthly payment will be deductible home mortgage interest, what is the maximum amount that Kendall can spend on a new home?
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