Over the past 40 years, interest rates have varied widely. The rate for a 30-year mortgage reached a high of 14.75% in July 1984, and it reached 3.31%, in November 2012. A significant impact of lower interest rates on society is that they enable more people to afford the purchase of a home. We consider the purchase of a home that sells for $125,000. Assume that we can make a down payment of $25,000, so we need to borrow $100,000. We assume that our annual income is $45,000 and that we have no other debt. We determine whether we can afford to buy the home at the high and low rates.

What is our monthly income?

Enter all answers rounded to the nearest cent.

monthly income: $

Lending agencies usually require that no more than 28% of the borrower's monthly income be spent on housing. How much does that represent in our case?

28% of monthly income: $

The amount we will spend on housing consists of our monthly mortgage payment plus property taxes and hazard insurance. Assume that property taxes plus insurance total $260 per month, and subtract this from 28% of our monthly income to determine what monthly payment we can afford.

affordable monthly payment: $

Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is at the historic high of 14.75%. Can we afford the home?

affordable mortgage with high interest: $

Using your previous answer, determine how much we can borrow if the term is 30 years and the interest rate is 3.31%.

affordable mortgage with low interest: $

In which situations can the $100,000 be afforded?

A)With high interest only

B)With low interest only

C)Only if there is no interest charged

D)With both high interest and low interest

What is the difference in the amount we can borrow between the rates used previously?