Extra Credit #3

You have a choice between the following two identical properties: Property A is

priced at $150,000 with 80 percent financing at a 10.5 percent for 20 years. Property

B is priced at 160,000 with an assumable mortgage of 100,000 at 9 percent interest

with 20 years remaining. Monthly payments are $899.73. A second mortgage for

$20,000 can be obtained at 13 percent interest for 20 years. All loans require

monthly payments and are fully amortizing.

d. With no preference other than financing, which property would you choose?

e. How would you answer change if the seller of Property B provided a second

mortgage for $20,000 at the same 9 percent rate as the assumable loan?

f. How would your answer change if the seller of Property B provided a second

mortgage for $30,000 at the same 9 percent rate as the assumable loan so

that no additional down payment would be required b y the buyer if the loan

were assumed?