# Question

Portland College is planning to purchase a home for its president in downtown Albuquerque. One property, with a selling price of $780,000, has been found, and the college treasurer is debating on the following purchase options:

Option A: Make a 20 percent down payment and ﬁnance the balance over 15 years at 8 percent.

Option B: Make a 20 percent down payment and ﬁnance the balance over 30 years at 8 percent.

Option C: Make a 30 percent down payment and ﬁnance the balance over 15 years at 6.5 percent.

Option D: Make a 30 percent down payment and ﬁnance the balance over 30 years at 6.5 percent.

Required:

(a) Use a mortgage calculator (such as the one at www.mortgage-calc.com) to ﬁnd the monthly payments for each option.

(b) What is the total interest paid for the mortgage under each of the options?

(c) If either of the 20 percent down options is chosen, the college can invest the other 10 percent ($78,000) in a certiﬁcate of deposit for either 15 or 30 years at an annual rate of 5 percent. Which of the options should the college choose to minimize the total cost of the house?

Option A: Make a 20 percent down payment and ﬁnance the balance over 15 years at 8 percent.

Option B: Make a 20 percent down payment and ﬁnance the balance over 30 years at 8 percent.

Option C: Make a 30 percent down payment and ﬁnance the balance over 15 years at 6.5 percent.

Option D: Make a 30 percent down payment and ﬁnance the balance over 30 years at 6.5 percent.

Required:

(a) Use a mortgage calculator (such as the one at www.mortgage-calc.com) to ﬁnd the monthly payments for each option.

(b) What is the total interest paid for the mortgage under each of the options?

(c) If either of the 20 percent down options is chosen, the college can invest the other 10 percent ($78,000) in a certiﬁcate of deposit for either 15 or 30 years at an annual rate of 5 percent. Which of the options should the college choose to minimize the total cost of the house?

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