Suppose the Smiths have pre-tax household income of approximately $120,000. The rule of thumb in personal finance is that one should not spend more than a third of their pre-tax income on a mortgage. The Smiths plan to play it safe and spend only a fourth of their pre-tax income on their mortgage. Thus, their budget for the monthly mortgage payment is $2,500.

STEP 1: Amortize the Smiths’ mortgage with a Covid rate Using the 2020 rate of 2.89% for a 30-year fixed-rate mortgage, create an amortization table in Excel (Label the tab “Covid Mortgage”) and answer the following questions alongside your table.

a) What is the value of the house the Smiths can afford to purchase?

b) How much interest would they pay over the life of the loan?

c) How much would they pay the bank in total over the life of the loan for the house?