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 of $350, thus, overall $1,100 monthly ***** *****sides future m*****tgage ***** costs. Kim's gross income of $55,000 a year and Dan's income ***** $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 overall ***** ***** $65,840. They are planning to use ***** most of this ***** for the initial down payment ***** $56,000 and closing ***** of $1,000 plus three points, or 3% of the loan amount ***** we assume it is prepaid interest on the loan which is after wards deducted from ***** overall loan payments over the term ***** the *****, thus ***** ***** payment of $56,000, plus $1,000, which 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 initial 3% points ***** this loan amount to be ***** paid are $6,720 and the family can pay this out of remaining after the down payment and fees $8,840. After ***** initial outlay, the family would have remaining $2,120 in their savings from the market money fund.

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

Loan Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate ***** n ***** the ***** term in years. The monthly ***** then have to ***** divided into ***** ***** equivalents, or $1,65***** monthly payments. Besides these loan servicing costs, the ***** has other costs of $1,100. Total household monthly income is $93,000/12 = $7,750. Total loan plus maintenance costs of $2,758 of 35% ***** their monthly ***** and thus the family is eligible ***** the mortgage. Nevertheless, the ***** of $2,3***** which would amount to equal *****% ***** *****ir ***** income would be more affordable for the family. But, the family must also consider that the interest rate is variable and is subject to inflation indexation in case of high market volatility and thus future monthly ***** of ***** family may increase signifi*****tly if the r*****ks ***** 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 ***** upwards and the ***** will have very high mortgage ***** costs.

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

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