Reference no: EM132459216

You want to buy a house, but you still need to pay your car loan of $15,000 over the next 5 years and the interest on the automobile loan is 8%. Your annual income is $50,000 and the bank estimates that your monthly loan payments should not represent more than 28% of your monthly income. You have decided to use that percentage of your current income to repay your car loan and also to save for the down payment in the house. In this way you will adjust your current monthly expenses to be ready to make the same monthly payments for 30 years. You estimate that you can get a fixed interest rate of 6.5% on a 15-year mortgage. You can invest at an average rate of 5% (your average discount rate). Determine the following:

If you decide to repay your car loan and invest the rest for the down payment at the same time at your average discount rate, how much money can you offer for the house as down payment? How much will the bank loan you in five years?