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% ***** the purchase price, or $56,000. Their monthly expenses on utilities, maintenance and property tax, home insurance are approximately $750 ***** they also have car credit servicing costs monthly of $350, thus, overall $1,100 monthly expenses *****sides future m*****tgage ***** 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 m*****ey market fund of $60,000 has earned them the last year interest of $5,840, thus ***** ***** of $65,840. They are planning to use ***** most of this money for the ***** down ***** of $56,000 and closing ***** ***** $1,000 plus three points, or 3% of ***** loan amount ***** we assume it is prepaid interest on the ***** which is after wards deducted from the overall loan payments over the term ***** the *****, ***** ***** ***** payment of $56,000, plus $1,000, which amounts to *****tal initial outlay of $57,000, ***** deducting this sum from the total savings, the family has $8,840 left. Thus, ***** family must borrow $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 the down payment and fees $8,840. After this ***** outlay, the family would have remaining $2,120 in their savings ***** the market money *****.

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

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

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

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