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% of 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 expenses *****sides future m*****tgage servicing costs. Kim's gross income of $55,000 a year and Dan's income ***** $38,000 make the total annual ***** of $93,000, ***** their tax rate on th***** income is 25% according to tax rates in 2006. Their savings in m*****ey 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 money for ***** ***** down payment of $56,000 and closing ***** ***** $1,000 plus three points, or 3% of the loan amount and we assume it is prepaid interest on the ***** which ***** after wards deducted from ***** overall loan payments over the term of the *****, ***** ***** ***** payment of $56,000, plus $1,000, which amounts to *****tal initial outlay ***** $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 initial 3% points of ***** loan amount to be also paid ***** $6,720 and the family can pay this out of remaining ***** the down payment and fees $8,840. After this ***** outlay, the family would have remaining $2,120 in their savings from the market money *****.

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

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate and n ***** the loa***** term in years. The ***** payments then have to be divided in***** ***** monthly equivalents, or $1,65***** monthly payments. Besides these loan servicing costs, the family ***** other 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***** which would ***** to equal 30% ***** their ***** income would be more affordable for the family. But, the ***** must also consider that the interest ***** ***** variable ***** 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 overall tendency ***** growing cost of financial resources in international markets which can further push interest ***** upwards ***** the ***** ***** have very high mortgage ***** costs.

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

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