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% 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 ***** $350, thus, overall $1,100 monthly ***** ********** future m*****tgage servicing costs. Kim's gross income of $55,000 a ye*****r and Dan's income of $38,000 make the total annual income of $93,000, and *****ir ***** rate on this income is 25% according to tax rates in 2006. ***** savings in money market fund of $60,000 has earned them the last year interest of $5,840, thus ***** ***** of $65,840. They are planning to use the most of this ***** for the ***** down payment ***** $56,000 ***** closing ***** of $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 the overall loan payments over the term of the loan, ***** ***** down payment of $56,000, plus $1,000, ***** amounts to *****tal 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 are $6,720 ***** the family can pay this out of remaining after the ***** payment and fees $8,840. After ***** initial outlay, the family would have remaining $2,120 in their savings ***** the market money *****.

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

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

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

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