Question

Shauna wants to buy a house and plans to rent the apartment located in the basement for extra income. The house has a purchase price of $195,600 and she will make a 5% down payment. Shauna has qualified for a 30 year mortgage with a fixed rate of 5.875%. Approximately how much rent should she charge for the apartment in order to cover her monthly mortgage payment if she only wants to spend $400 a month of her own money?
a.
$300
b.
$700
c.
$1100
d.
$1150

Answer 1

Loan = 195,600 - 0.05(195,600) = 195,600 - 9,780 = 185,820.
Monthly rate r = 0.05875/12 = 0.0048958333, n = 360.
Monthly payment = 185,820 * [r(1+r)^n]/[(1+r)^n − 1] ≈ $1,100.

If Shauna only wants to pay $400 herself, rent needed ≈ 1,100 − 400 = $700.

Answer: b. $700