GOVERNOR’S INSTITUTE 2011 MORTGAGE ECONOMICS. INTEREST FORMULAS (SIMPLE AND COMPOUND)

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Presentation transcript:

GOVERNOR’S INSTITUTE 2011 MORTGAGE ECONOMICS

INTEREST FORMULAS (SIMPLE AND COMPOUND)

Example… A proud grandfather starts an college fund investment account for a newborn child. If the account pays a 6% annual rate with quarterly compounding, how much will the $25,000 initial deposit be worth in 18 years when the child starts at UVM? P = $25,000, r = 0.06, n = 4 & t = 18

Could we find our budget? If we knew what we could afford for a monthly payment, could we determine what mortgage we could afford? Could we go in the other direction? It is generally recognized that the feasible cutoff for household income to go to housing payment is 28%. Given a chosen house, can you determine what annual salary you’ll need to earn?