Dorothy and Matt are ready to purchase their first home. Their current monthly cash inflows are...

Question:

Dorothy and Matt are ready to purchase their first home. Their current monthly cash inflows are $4,900, and their current monthly cash outflows are $3,650. Their rent makes up $650 of their cash flows. They would like to put 10% of their cash inflows in savings and put another $200 in their checking account for emergencies. How much of a mortgage payment can they manage under these conditions?

Mortgage payments:

Mortgage payment is the periodic payment made by the borrower to the lender of loan. Mortgage payment includes principal and interest payment. To calculate the amount of mortgage payment that can be made, it is needed to consider monthly cash inflows and outflows of an individual.

Answer and Explanation:

Current monthly cash inflows = $4,900

Current monthly cash outflows = $3,650.

Monthly Rent = $650

Monthly savings = 10% of their cash inflows = 10% * $4,900 = $490

Monthly deposit in their checking account for emergencies =$200

Monthly cash outflows = Cash outflows - monthly rent + monthly savings + monthly deposit for emergencies

Monthly cash outflows = 3,650 - 650 + 490 + 200 = $3,690

Mortgage payment that can be managed = Cash inflows - Cash outflows = $4,900 - $3,690 = $1,210


Learn more about this topic:

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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
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