Consider two ways of getting a mortgage on a house worth $750,000. You plan to make...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider two ways of getting a mortgage on a house worth $750,000. You plan to make a down payment of $300,000 at closing. You need to borrow the rest of the $450,000. The first option is a 15-year fixed-rate mortgage at a 5.25% effective annual interest rate (Assume monthly compounding with 12 payments per year to get a monthly interest rate). In the second option, you can "buy" a lower effective annual interest rate of 4.5% by paying the bank an additional $25,000 cash at closing (also assume 12 monthly payments over the year with monthly compounding). You are still borrowing $450,000, but now you are paying an additional $25,000 in cash up front at origination (this is commonly called paying "points" on a mortgage). All other costs are the same under both options. ● ● Using the monthly interest rate over 180 payments, what would your monthly payment be under the first scenario? Using the monthly interest rate over 180 payments, what would be your monthly payment under the second scenario? Show which option is better. Consider two ways of getting a mortgage on a house worth $750,000. You plan to make a down payment of $300,000 at closing. You need to borrow the rest of the $450,000. The first option is a 15-year fixed-rate mortgage at a 5.25% effective annual interest rate (Assume monthly compounding with 12 payments per year to get a monthly interest rate). In the second option, you can "buy" a lower effective annual interest rate of 4.5% by paying the bank an additional $25,000 cash at closing (also assume 12 monthly payments over the year with monthly compounding). You are still borrowing $450,000, but now you are paying an additional $25,000 in cash up front at origination (this is commonly called paying "points" on a mortgage). All other costs are the same under both options. ● ● Using the monthly interest rate over 180 payments, what would your monthly payment be under the first scenario? Using the monthly interest rate over 180 payments, what would be your monthly payment under the second scenario? Show which option is better.
Expert Answer:
Answer rating: 100% (QA)
Lets calculate the monthly payments for a 15year fixedrate mortgage at 525 effective annual interest ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Solve the linear equation with the x-intercept method. Check your answer. Approximate the solution to the nearest thousandth whenever appropriate. -1-x = = 0
-
Why should an entrepreneur develop a business plan?
-
The unadjusted trial balance of Anniston Air Purification System at December 31, 2024, and the data needed for the adjustments follow: Adjustment data at December 31 follow: a. On December 15,...
-
Capillary action is due to the: (a) Surface tension (b) Cohesion of the liquid (c) Adhesion of the liquid molecules and the molecules on the surface of a solid (d) All of the above
-
1. What conclusions do you reach when you calculate descriptive statistics for the answers to each of the survey questions in the database? 2. If you average the responses to the first seven...
-
Required: Prepare a process costing work sheet. Organic Fertilizer Inc manufactures fertilizer using a three stage composting system which improves the nutrient content in the soils and provide...
-
1. Relate the material in this case to the concept of the total retail experience. 2. What uncontrollable factors will affect a retailers ability to undertake the suggestions cited in the case? How...
-
Bay Ferry Co. has a net investment of $1 million in ferry and facilities and is allowed a 10% return. Operating costs are half a million dollars per year, one-half of which is for fuel. Ticket sales...
-
Runner A is initially 5 . 0 mi west of a flagpole and is running with a constant velocity of 3 . 0 mi / h due east. Runner B is initially 2 . 0 mi east of the flagpole and is running with a constant...
-
If you have swam one lap in a swimming pool, that means you have swam from one end to the other and back. In 4 . 5 h , a swimmer makes exactly 3 2 . 5 laps in a swimming pool that is 2 2 m long....
-
Explain the relationship between Cuba and African Liberation Movements.
-
What were some successes and failures of both Capitalist and Socialist regimes in Africa from 1960-1985?
-
How does multiple characters in William Goldings Lord of the Flies drastically change as they devolve from humanity into savagery?
-
Samson applied for a job with Fed Ex as a Vehicle Technician. He was an experienced vehicle mechanic, and also a Type-1 insulin-dependent diabetic. Since FedEx is a motor carrier, the Federal Motor...
-
How does health insurance risk differ from other types of insurance risk (e.g., automobile or homeowners insurance)? What is the difference between cost sharing and cost shifting? Is retiree health...
-
Find the present value of the following ordinary annuities: a. $400 per year for 10 years at 10 percent b. $200 per year for five years at 5 percent
-
Analysts of the ICM Corporation have indicated that the company is expected to grow at a 5 percent rate for as long as it is in business. Currently, ICMs stock is selling for $70 per share. The most...
-
Use the model in File C17 to solve this problem. Refer back to Problem 17-11. Rework parts (a) through (d) using the computerized model, but make the following changes. Consider each change to be...
-
The suitability concern discussed by Kroll and Park most likely deals with: A. governance. B. transparency. C. investment horizon. Kevin Kroll is the chair of the investment committee responsible for...
-
Which of Parks statements regarding the asset allocation approaches is correct? A. Only Statement 3 B. Only Statement 4 C. Both Statement 3 and Statement 4 Kevin Kroll is the chair of the investment...
-
Based on the forecasted environment, liquidity planning should take into account that general partners may: A. call capital at a slower pace. B. make distributions at a faster pace. C. exercise an...
Study smarter with the SolutionInn App