Chapter 17: Problem 3

Calculate the equity each of these people has in his or her home: a. Fred just bought a house for $200,000 by putting 10% as a down payment and borrowing the rest from the bank. b. Freda bought a house for $150,000 in cash, but if she were to sell it now, it would sell for $250,000. c. Frank bought a house for $100,000. He put 20% down and borrowed the rest from the bank. However, the value of the house has now increased to $160,000 and he has paid off $20,000 of the bank loan.

Short Answer

Expert verified

Fred's equity in his home is $20,000. Freda's equity in her home is $250,000. Frank's equity in his home is $100,000.

Step by step solution

Fred's Equity

1. Calculate the down payment: $Down\;Payment = \frac{10}{100} * 200,000 = 20,000$ 2. Calculate the mortgage balance: $Mortgage\;Balance = 200,000 - 20,000 = 180,000$ 3. Calculate the equity: $Equity = Market\;Value - Mortgage\;Balance = 200,000 - 180,000 = 20,000$ So, Fred's equity in his home is $20,000.

Freda's Equity

Freda bought her house in cash, so she has no mortgage balance. 1. Calculate the equity: $Equity = Market\;Value - Mortgage\;Balance = 250,000 - 0 = 250,000$ So, Freda's equity in her home is $250,000.

Frank's Equity

1. Calculate the down payment: $Down\;Payment = \frac{20}{100} * 100,000 = 20,000$ 2. Calculate the mortgage balance: Mortgage Balance (initial) = $100,000 - 20,000 = 80,000$ Mortgage Balance (current) = $80,000 - Loan\;Paid$ = $80,000 - 20,000 = 60,000$ 3. Calculate the equity: $Equity = Market\;Value - Mortgage\;Balance = 160,000 - 60,000 = 100,000$ So, Frank's equity in his home is $100,000.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Short Answer

Step by step solution

Fred's Equity

Freda's Equity

Frank's Equity

One App. One Place for Learning.

Most popular questions from this chapter

Study anywhere. Anytime. Across all devices.