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 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
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from Finance 102: Personal FinanceChapter 7 / Lesson 4