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19 May, 15:02

Rebecca and Tom Payton have decided to buy a home that costs $200,000. The Paytons can put down 20% of the home's price. They have applied for a 15-year, 9% FRM to finance the balance. They Paytons have a combined gross annual income of $70,000. Answer the following questions about the Payton's decision.

What is the maximum amount the Paytons should pay each month, according to the 28% rule given in the Background Information in Day 1 of Project 2?

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  1. 19 May, 15:11
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    M = P * i (1+i) ^n / ((1+i) ^n - 1)

    where:

    M = Mortgage payment

    P = Principal amount = $200,000 * 0.80 = $160,000

    i = interest rate = 0.09/12 = 0.0075

    n = number of payments = 12*15 = 180

    M = $160,000 * 0.0075 * 1.0075^180 / (1.0075^180 - 1)

    M = $1622.8265

    Total paid = 180 * $1622.8365 = $292,108.77
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