Question
You want to buy a house that costs $130,000. You have $13,000 for a down payment, but your credit is such that mortgage companies will
You want to buy a house that costs $130,000. You have $13,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $117,000. However, the realtor persuades the seller to take a $117,000 mortgage (called a seller take-back mortgage) at a rate of 6%, provided the loan is paid off in full in 3 years. You expect to inherit $130,000 in 3 years, but right now all you have is $13,000, and you can afford to make payments of no more than $23,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.)
- If the loan was amortized over 3 years, how large would each annual payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
- If the loan was amortized over 30 years, what would each payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
To satisfy the seller, the 30-year mortgage loan would be written as a balloon note, which means that at the end of the third year, you would have to make the regular payment plus the remaining balance on the loan.
- What would the loan balance be at the end of Year 3? Do not round intermediate calculations. Round your answer to the nearest cent.
- What would the balloon payment be? Do not round intermediate calculations. Round your answer to the nearest cent.
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