Kendall Is Considering the Purchase of a Home

question 39

Essay

Kendall is considering the purchase of a home. He has saved $22,000 for a down payment on a home and will finance the remainder of the purchase price with a home mortgage loan. Kendall currently rents an apartment for $1,200 per month and does not anticipate an increase in his monthly income. He wants to make sure that the monthly payment on his new home does not exceed $1,200, after-tax. Kendall has a marginal tax rate of 25 percent and an average tax rate of 22 percent. Assuming the monthly mortgage payment (before-tax) will be equal to 1 percent of the initial mortgage balance and the entire amount of each monthly payment will be deductible home mortgage interest, what is the maximum amount that Kendall can spend on a new home?

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Definitions:

Malay

Pertains to a major ethnic group within Southeast Asia, primarily found in Malaysia, Indonesia, Singapore, Brunei, and Thailand, or the Austronesian language spoken by them.

Pacific Islanders

People native to the islands in the Pacific Ocean, including Polynesians, Micronesians, and Melanesians.

Indigenous Australians

The Aboriginal and Torres Strait Islander peoples of Australia, recognized as the original inhabitants of the continent.

Genetic Drift

A mechanism of evolution that results in random changes in the frequency of alleles (gene variants) in a population over time due to chance events.