# Essay - Kim and Dan the Price of the Home is $280,000....

Kim and Dan

***** price of the home is $280,000. The initial down payment to be made is 20% ***** the purchase price, or $56,000. Their monthly expenses on utilities, maintenance and property tax, home insurance are approximately $750 and they also have car credit servicing costs monthly of $350, thus, overall $1,100 ***** ***** *****sides future mortgage ***** costs. Kim's gross income of $55,000 a ye*****r ***** Dan's income ***** $38,000 make the total annual income of $93,000, and their tax rate on th***** income is 25% according to ***** rates in 2006. Their savings in m*****ey market fund of $60,000 has earned them the last year interest of $5,840, thus ***** savings ***** $65,840. They are planning ***** use ***** most of this money for the initial down payment of $56,000 and closing costs of $1,000 plus three points, or 3% of the loan amount ***** we assume it is prepaid interest on the loan which is after wards deducted from the overall loan payments over the term ***** the *****, thus ***** down payment of $56,000, plus $1,000, ***** amounts to total initial outlay ***** $57,000, ***** deducting this sum from the total savings, the family has $8,840 left. Thus, the family must borrow $280,000-$56,000=$224,000. Three initial 3% points of ***** loan amount to be ***** paid ***** $6,720 and ***** family can pay this out of remaining after the down payment and fees $8,840. After ***** ***** outlay, the family would have remaining $2,120 in their savings ***** the market ***** *****.

The loan is offered at 8% variable ***** rate for the ***** of 30 *****s. Annuity ***** payments ***** will equal

Loan Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate and n ***** the loan term in years. The monthly ***** then have to be divided into their ***** equivalents, or $1,658 monthly payments. Besides these loan servicing *****, the ***** ***** o*****r costs of $1,100. Total household monthly income is $93,000/12 = $7,750. Total loan ***** maintenance ***** of $2,758 ***** 35% of ***** monthly ***** and thus the family is eligible for ***** mortgage. Nevertheless, the mortgage ***** $2,325 which would ***** to equal *****% of *****ir ***** income would be more affordable for the family. But, the family ***** also consider that ***** interest ***** is variable ***** is subject to inflation indexation in case of high market volatility and thus future monthly ***** of the family may increase signifi*****tly if the r*****ks ***** the lender increase. Presently the Federal Reserve discount rate is increasing constantly and there is *****all tendency ***** growing cost of financial resources in international markets which can further push interest rates upwards and the ***** will have very high mortgage ***** costs.

The renting option ***** include $1,400 per month plus utilities ***** $220 and insurance of $25, thus overall monthly payments of $1,645, while mortgage servicing and ***** costs are $2,758. Presently *****y are purchasing a house ***** $280,000

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