# Pv: annuity problem

• June 19th 2013, 09:35 PM
Jarryd12
Pv: annuity problem
You are able to pay $1200 per month in mortgage repayments. You can get a 30 year loan with interest of 8.5% compounded monthly but you must pay 5% of the cost of the house as an initial payment. Assuming that you have saved enough for the initial payment, what is the highest price you can afford to pay for a house? The 5% part is confusing me a bit. PV of the loan =$165064.37
Do i simply multiply this by 1.05?

• June 19th 2013, 10:07 PM
downthesun01
Re: Pv: annuity problem
From reading the question, it looks like you're approaching the problem correctly.

Since we're paying 5% of the loan immediately as a down payment we have 95% of the loan left, so:

$0.95L=1200a_{\overline{360}|\frac{0.085}{12}}=1560 64.37$

Then divide by 0.95 to find L. By the way, you transposed the 5 and 6 in your answer.
• June 20th 2013, 12:12 AM
Jarryd12
Re: Pv: annuity problem
Thanks for that mate.
Appreciate it