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Math Help - Pv: annuity problem

  1. #1
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    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?

    Thanks in advance,
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  2. #2
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    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.
    Last edited by downthesun01; June 19th 2013 at 11:10 PM.
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  3. #3
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    Re: Pv: annuity problem

    Thanks for that mate.
    Appreciate it
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