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


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Kim and Dan

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

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

Loan Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate and n ***** the ***** term in years. The monthly ***** then ***** to ***** divided in***** their monthly equivalents, or $1,658 monthly payments. Besides these loan servicing costs, the family ***** o*****r costs of $1,100. Total household monthly income 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 ***** the mortgage. Nevertheless, the mortgage of $2,3***** which would amount to equal 30% of *****ir ***** 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 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 *****all tendency ***** growing cost of financial resources in international markets ***** can further push interest ***** upwards ***** the family ***** have very high mortgage ***** costs.

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

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