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


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Kim and Dan

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

The loan is ********** at 8% variable interest rate for the ***** of 30 years. Annuity annual payments ***** will equal

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual ***** rate and n ***** the loan term in years. The monthly payments then have to ***** divided into ***** monthly equivalents, or $1,658 monthly payments. Besides these loan servicing costs, the ***** has o*****r costs of $1,100. Total household monthly ***** is $93,000/12 = $7,750. Total loan plus maintenance ***** of $2,758 of 35% ***** their monthly income and thus the family is eligible for ***** *****. Nevertheless, the mortgage of $2,3***** ***** would ***** to equal 30% ***** their monthly income would be more af*****dable for the family. But, the ***** must also consider that the interest ***** is variable ***** is subject to inflation indexation in case of high market volatility and thus future ***** payments of ***** family may increase signifi*****tly if the r*****ks of the lender increase. Presently the Federal Reserve discount rate is increasing constantly and *****re is overall tendency to growing cost of financial resources in international markets which can further push interest rates upwards and the family ***** have very ***** mortgage servicing costs.

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

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