# 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% ***** 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 ***** besides 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 ***** of $93,000, ***** *****ir ***** rate on this income is 25% according to tax rates in 2006. ***** savings in money market fund ***** $60,000 has earned them the last year interest of $5,840, thus overall savings of $65,840. They are planning ***** use ***** most of this ***** for the initial down payment ***** $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 ***** which ***** after wards deducted from ***** overall loan payments over the term ***** the loan, thus the down payment of $56,000, plus $1,000, which amounts to *****tal initial outlay ***** $57,000, ***** 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 this loan amount to be ***** paid ***** $6,720 and the family can pay ***** out of remaining after ***** ***** payment and fees $8,840. After this ***** outlay, the family would have remaining $2,120 in their savings from the market money fund.

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

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual ***** rate and n ***** the ***** term i***** years. The ***** ***** then ***** to ***** divided in***** their monthly equivalents, or $1,65***** monthly payments. Besides these loan servicing costs, the family ***** other 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 for the mortgage. Nevertheless, the ***** of $2,325 which would amount to equal 30% of their monthly income would be more af*****dable for the family. But, the family ***** also consider that ***** interest ***** is variable and is subject to inflation indexation in case ***** high ***** volatility and thus future ***** payments of the family may increase significantly if the risks ***** the lender *****. Presently ***** Federal Reserve discount rate is increasing constantly and there is overall tendency to growing cost of financial resources in international markets ***** can further push interest ***** upwards ***** the family will have very high mortgage servicing costs.

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

**[END OF TERM PAPER PREVIEW]**

Download full paper (and others like it) | Order a brand new, custom-written paper