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

Kim and Dan

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

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

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate and n ***** the loa***** term in years. The ***** payments then have to be divided in***** ***** monthly equivalents, or \$1,65***** monthly payments. Besides these loan servicing costs, the family ***** other costs of \$1,100. Total household monthly ***** is \$93,000/12 = \$7,750. Total loan ***** maintenance ***** of \$2,758 of 35% of their monthly income and thus the family is eligible ***** ***** mortgage. Nevertheless, the ***** of \$2,3***** which would ***** to equal 30% ***** their ***** income would be more affordable for the family. But, the ***** must also consider that the interest ***** ***** variable ***** is subject to inflation indexation in case of high ***** volatility and thus future monthly payments of the family may increase significantly if the risks of the lender *****. Presently ***** Federal Reserve discount rate is increasing constantly and there is overall tendency ***** growing cost of financial resources in international markets which can further push interest ***** upwards ***** the ***** ***** have very high mortgage ***** costs.

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

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