Peter wants to buy a duplex with a purchase price of $226,950. peter can afford a 10% down payment. peter earns $2,985 a month and wants to spend no more than 10% of his income on his mortgage payment. peter is going to rent out the other half of the duplex. he thinks that if he charges $900 a month in rent this will cover the remainder of his mortgage payment. given that peter has a 30 year mortgage with a fixed rate of 6.25%, how should peter adjust how much he charges for rent of the other half of the duplex?

Peter needs to adjust the amount he charges for rent for the other half of the duplex by increasing it to $960.

Data and Calculations:

Down Payment = 10 %

Loan Term = 30  years

Interest Rate = 6.25%

House Price = $226,950.00

Loan Amount = $204,255.00 ($226,950 x (1 - 10%)

Down Payment = $22,695.00 ($226,950 x 10%)

Total of 360 Mortgage Payments = $452,747.94  ($1,257.63 x 360)

Total Interest= $248,492.94

Results:  

Monthly Pay:   $1,257.63  

Peter's monthly earnings = $2,985

10% of monthly earnings = $298.50

Monthly rent income expected = $900

The Total Earnings (10% of monthly earnings Plus Monthly Rent) per month = $1,198.50 ($298.50 + $900)

The shortfall in monthly earnings versus monthly mortgage payment = $59.13 ($1,198.50 - $1,257.63).

Thus, Peter needs to adjust the amount that he charges for rent, increasing it by $59.13 to $959.13, or $960 approximately.

Learn more on the computation of monthly mortgage payment here: link

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