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Table 6-5 Calculating the maximum purchase price

KeysDisplay Description

JG\Í

12.00

Sets periods per year.

 

 

 

 

D:\Ú

 

mortgage (30 × 12).

 

360.00

Stores the length of the

 

 

 

:É

0.00

Pays mortgage off in 30 years.

 

 

 

 

j7VÒ

7.50

Stores interest rate.

 

 

 

 

dD:yÌ

 

paid out is negative).

 

-930.00

Stores desired payment (money

 

 

 

Ï

133,006.39

Calculates the loan you can

 

afford with a 930 payment.

 

 

 

1JG:::4

 

for the total purchase price.

 

145,006.39

Adds 12,000 down payment

 

 

 

Example: A Mortgage With a Balloon Payment

You’ve obtained a 25 year, 172,500 mortgage at 8.8% annual interest. You anticipate that you will own the house for four years and then sell it, repaying the loan with a balloon payment. What will your balloon payment be?

Solve this problem using two steps:

1.Calculate the loan payment using a 25 year term.

2.Calculate the remaining balance after 4 years.

Step 1

First calculate the loan payment using a 25 year term.

Time Value of Money Calculations 65