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, home insurance are approximately $750 ***** they also have car credit servicing costs monthly ***** $350, thus, overall $1,100 monthly expenses besides future mortgage servicing costs. Kim's gross income of $55,000 a ye*****r and Dan's income ***** $38,000 make the total annual ***** of $93,000, ***** their tax rate on this income is 25% according to tax rates in 2006. ***** savings in m*****ey market fund ***** $60,000 has earned them the last year interest of $5,840, thus ***** ***** of $65,840. They are planning to use the most of this money for the ***** down ***** of $56,000 and closing costs ***** $1,000 plus three points, or 3% of ***** loan amount and we assume it is prepaid interest on the ***** which ***** after wards deducted from ***** overall loan payments over the term of the *****, thus ***** ***** payment of $56,000, plus $1,000, which amounts to *****tal initial outlay of $57,000, after deducting this sum from the total savings, the family has $8,840 left. Thus, ***** family must borrow $280,000-$56,000=$224,000. Three ***** 3% points of this loan amount to be ***** paid are $6,720 and the family can pay this out of remaining ***** ***** down payment and fees $8,840. After this initial outlay, the family would have remaining $2,120 in their savings ***** the market money *****.

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

Loan Amount / (1/r - 1/(r*(1 + r)^n)), where r is the annual ***** rate and n is the ***** ***** i***** years. The ***** ***** then ***** to ***** divided in***** their monthly equivalents, or $1,658 monthly payments. Besides these loan servicing *****, 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% ***** ***** monthly income and thus the family is eligible for the *****. Nevertheless, the mortgage of $2,3***** ***** would amount to equal 30% of their ***** income would be more affordable for the family. But, the family must also consider that ***** 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 the Federal Reserve discount rate is increasing constantly and *****re is overall tendency ***** growing cost of financial resources in international markets which can further push interest *****s upwards and the family will have very high mortgage servicing costs.

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

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