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 ***** property tax, home insurance are approximately $750 and they also have car credit servicing costs monthly of $350, thus, overall $1,100 monthly expenses besides future m*****tgage servicing costs. Kim's gross income of $55,000 a year and Dan's income of $38,000 make the total annual income of $93,000, and their tax rate on this income is 25% according to tax rates in 2006. Their savings in money market fund ***** $60,000 has earned them the last year interest of $5,840, thus ***** savings ***** $65,840. They are planning to use the most of this money for the ***** down payment ***** $56,000 ***** closing costs of $1,000 plus three points, or 3% of ***** loan amount and we assume it is prepaid interest on the loan which is after wards deducted from ***** overall loan payments over the term ***** the loan, ***** the ***** payment of $56,000, plus $1,000, ***** amounts to total 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 ***** paid ***** $6,720 ***** the family can pay this out of remaining ***** ***** 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 interest rate for the term of 30 *****s. Annuity annual payments thus will equal

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

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

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