# 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% ***** 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 servicing costs. Kim's gross income of \$55,000 a year ***** Dan's income of \$38,000 make the total annual income of \$93,000, and their ***** rate on th***** income is 25% according to tax rates in 2006. ***** savings in money market fund ***** \$60,000 has earned them the last year interest of \$5,840, thus overall ***** ***** \$65,840. They are planning ***** use the most of this money for the initial down ***** of \$56,000 ***** closing costs of \$1,000 plus three points, or 3% of the loan amount and we assume it is prepaid interest on the loan which ***** after wards deducted from ***** overall loan payments over the term ***** the *****, thus ***** down 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, the family must b*****row \$280,000-\$56,000=\$224,000. Three initial 3% points of ***** loan amount to be also paid ***** \$6,720 and ***** family can pay this out of remaining after the down payment and fees \$8,840. After this ***** outlay, the family would have remaining \$2,120 in their savings from the market ***** *****.

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

***** Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual interest rate ***** n ***** the ***** term in years. The ***** payments then ***** to be divided in***** their monthly equivalents, or \$1,658 monthly payments. Besides these loan servicing *****, the family ***** o*****r costs of \$1,100. Total household monthly income is \$93,000/12 = \$7,750. Total loan plus maintenance costs of \$2,758 ***** 35% of ***** monthly income and thus the family is eligible ***** the mortgage. Nevertheless, the ***** ***** \$2,325 which would amount to equal 30% 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 of high market volatility and thus future ***** ***** 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 to growing cost of financial resources in international markets ***** can further push interest rates upwards ***** the family will have very ***** mortgage servicing costs.

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

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