The Housing Bank (HB) offers home loans to Lebanese professionals. Borrowers receive the loan immediately upon buying a home, and pay back in equal…
The Housing Bank (HB) offers home loans to Lebanese professionals. Borrowers receive the loan immediately upon buying a home, and pay back in equal monthly installments for 20 years. To encourage low-income applicants, a fixed interest rate of 6% compounded monthly is offered on loans not exceeding $120,000. A loan above $120,000 is subject to the 6% rate on the first $120,000, and the remainder part is subject to a higher interest of 8% compounded monthly. (E.g., for a $130,000 loan, the interest is 6% on the first $120,000 and 8% on the remainder $10,000). Furthermore, to help the borrower covering the many expenses associated with the purchase (e.g., taxes, fees, commissions, etc.), a 3-month “grace period” is offered. (That is, the first monthly payment is made at the end of the fourth month after receiving the loan.) However, interest at the rates above is applied to the loan during the grace period.(a) Sa’eed, a successful EM graduate working for a growing consulting firm, applied for a $150,000 loan from HB to buy a small flat. How much is Sa’eed’s monthly payment? (b) Sa’eed decided to go for a bigger home and now requires more money than in (a). However, HB has a stated policy that the monthly payment should not exceed one third of the borrower income. If Sa’eed’s salary is $3,600 per month, what is the maximum loan he can get from HB?
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