A couple wishes to borrow money using the equity in their ho

A couple wishes to borrow money using the equity in their home for collateral. A loan company will loan them up to 70% of their equity. They purchased their home 10 years ago for $79,890. The home was financed by paying 15% down and signing a 30 year mortgage at 8.7% on the unpaid balance. Equal monthly payment were made to amortize the loan over the 30 year period. The net market value of the house is now $100,000. After making their 120th payment, they applied to the loan company for the maximum loan. How much (to the nearest dollar) will they receive?

Solution

mortgage amount = 71961*0.85 = 61166.85
PMT = 61166.85*(0.087/12)/(1 - (1+(0.087/12))^-360) = 479.02
outstanding balance after 120 payments
=61166.85(1+(0.087/12))^120 - 479.02((1+0.087/12)^120-1)/(0.087/12) =
= 145542.3 - 156081.5 = -10539.2
equity = 100,000 +10539.2 =110539.2
max loan = 0.7*110539.2= $77377.44