You just purchased a 400000 house and gave a 20 down payment

You just purchased a $400,000 house and gave a 20% down payment. For the remaining portion, you obtained a 30-year mortgage at a 6% interest rate. (6 points) What are the monthly payments on this mortgage? If the house appreciates at a 3 percent annually, what will be the value of the house in ten years? In ten years, how much equity will you have on this home? Answer all questions and show work in Excel.

Solution

At beginning, Equity = 400,000*0.2 = 80,000, Debt = 320,000

PV = 320,000, N = 30*12 = 360, r = 6/12 = 0.5%, FV = 0

PV = 320,000 = (PMT/0.005) * (1 - 1/1.005^360)

PMT = 1918.56

Monthly payment = $1918.56

House appreciate at 3%

Value of house in 10 years = 400,000*1.03^10 = 537,566.55

PV = 320,000, N = 10*12 = 120, r = 6/12 = 0.5%, PMT = 1918.56

Compute FV = $267,794.32

In 10 years, Debt = $267,794.32, Equity = 537,566.55 - 267,794.32 = 269,772.23