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 ***** besides future m*****tgage ***** costs. Kim's gross income of $55,000 a year ***** Dan's income ***** $38,000 make the total annual ***** of $93,000, and their ***** 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 ***** use the most of this ***** for ***** initial down ***** ***** $56,000 ***** closing ***** of $1,000 plus three points, or 3% of the loan amount and we assume it is prepaid interest on the loan which is after wards deducted from the overall loan payments over the term of the loan, thus ***** ***** payment of $56,000, plus $1,000, ***** amounts to total initial outlay of $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 ***** 3% points of ***** loan amount to be ***** paid are $6,720 ***** the family can pay this out of remaining ***** 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 *****fered at 8% variable ***** rate for the term of 30 years. Annuity ***** payments ***** will equal

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate ***** n is the loa***** ***** in years. The ***** payments then have to ***** divided into their monthly equivalents, or $1,658 monthly payments. Besides these loan servicing costs, the ***** ***** o*****r 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 $2,325 which would amount to equal 30% of their ***** income would be more affordable for the family. But, the family ***** also consider that ***** interest rate ***** variable and is subject to inflation indexation in case ***** high ***** volatility and thus future monthly payments of the family may increase signifi*****tly if the risks ***** the lender increase. Presently the Federal Reserve discount rate is increasing constantly and there is *****all tendency ***** growing cost of financial resources in international markets which can further push interest ***** upwards ***** the family ***** have very ***** mortgage servicing costs.

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

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