With a monthly payment capacity of $1,000, what is the largest loan amount a buyer can afford at 5.5% for 30 years?

With a monthly payment capacity of $1,000, what is the largest loan amount a buyer can afford at 5.5% for 30 years?

• A. $150,000
• B. $176,100
• C. $200,000
• D. $125,000

Answer: (B)

To determine the maximum loan amount a buyer can afford with a monthly payment capacity of $1,000 at an interest rate of 5.5% for a term of 30 years, it's essential to utilize the formula for calculating monthly mortgage payments, which can be derived from the loan amount equation: \[ M = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1} \] Where: - \( M \) is the monthly payment, - \( P \) is the loan amount (principal), - \( r \) is the monthly interest rate (annual rate divided by 12), - \( n \) is the number of payments (loan term in months). In this case, the monthly interest rate \( r \) would be \( \frac{5.5\%}{12} \) or approximately \( 0.004583 \). The number of payments \( n \) for a 30-year mortgage is \( 30 \times 12 = 360 \). The objective is to rearrange this formula to solve for \( P \), the loan amount. By substituting the given monthly payment of $1,000 into the rearranged formula, you

To determine the maximum loan amount a buyer can afford with a monthly payment capacity of $1,000 at an interest rate of 5.5% for a term of 30 years, it's essential to utilize the formula for calculating monthly mortgage payments, which can be derived from the loan amount equation:

[ M = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1} ]

Where:

• ( M ) is the monthly payment,

• ( P ) is the loan amount (principal),

• ( r ) is the monthly interest rate (annual rate divided by 12),

• ( n ) is the number of payments (loan term in months).

In this case, the monthly interest rate ( r ) would be ( \frac{5.5%}{12} ) or approximately ( 0.004583 ). The number of payments ( n ) for a 30-year mortgage is ( 30 \times 12 = 360 ).

The objective is to rearrange this formula to solve for ( P ), the loan amount. By substituting the given monthly payment of $1,000 into the rearranged formula, you