The Johnsons have accumulated a nest egg of $40,000 that they intend to use as a down payment toward the purchase of a new house.

Question

The Johnsons have accumulated a nest egg of $40,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $2500/month in monthly payments (to take advantage of the tax deduction) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $3100. If local mortgage rates are 3.5%/year compounded monthly for a conventional 30-year mortgage, what is the price range of houses that they should consider? (Round your answers to the nearest cent.)

least expensive	$
most expensive	$

Answer 1

Using a amortization table and plugging the interest rate (3.5%), down payment ($40,000) and mortgage type (30 year conventional) into the model, you can determine the price range the Johnson’s should consider.

Least expensive: $598,360.17

Most expensive: $732,369.10