Donna is thinking about buying a house that costs $100,000. If she puts down $20,000 and is able to get a 5 percent mortgage, she wants an estimate of her total monthly housing expenses. As we just learned, the average annual cost for owning a house is 4.09 percent of the value of the house. If we do not include the opportunity cost of the down payment, amortization on the loan or any tax benefits from home ownership, what will be her monthly cost the first month?

$674.17

Explanation:

Total cost of the house = $100,000. If she pays $20,000 as down payment, the cost of the house left is

$100,000 - $20,000

= $80,000

From the question if she gets 5% mortgage annually, the amount she would be paying per year for her mortgage is

= 5% × $80,000

= 5/100 × $80,000

= $4,000

To calculate how much per month she would be paying for her mortgage,

Since 12 months = 1 year

= $4,000 ÷ 12 months

= $333.333

From the question, we find out that that annual cost of owning the house is 4.09% of the value of the house.

The value of the house is 100000

The amount she would pay to own the house per year =

4.09% × $100,000

4.09/100 × $100,000

= $4,090

Since 12 months = 1 year

The amount Donna would pay per month to own the house is

$4,090 ÷ 12 months

= $340.833

Therefore, the first monthly cost Donna would be paying

= monthly mortgage payment + monthly payment to own the house

=$333.333 + $340.833

= $674.166

Approximately = $674.17