Question

A typical family income is $75,000 per year. Family financial experts recommend that mortgage payments not exceed 25% of the family's income. Assuming a current mortgage interest rate of 4.2% compounded monthly for a 30 year mortgage with monthly payments. What is the largest mortgage a family can afford?

plug in the numbers in your payment formula, and make sure that the monthly payment is less than .25*75000/12 = $1562.50
So they can afford .25(75000) or $18750 per year, or approx. $1562 per month.

present value = 1562(1 - 1.0035^-360)/.0035 = ????

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