You have a choice between two identicalproperties – Property A and Property B.

Property A: Purchase Price = $300,000

Down payment = $60,000

Mortgage = $240,000, fully amortizing

Term = 20 years, Payments = end of month, Int Rate = 10.8%

                 

Property B: Purchase Price = $320,000

Down payment = $80,000

Assumed Mortgage = $200,000 (fully amortizing)

Remaining Term = 20 years, Payment = $1,799.45/month, Rate = 9%

                 

In addition to the assumable mortgage, you have a 2^nd fully amortizing mortgage

Mortgage Amount $40,000

Term = 20 years, end of month payments.

Rate = 13.2%,

Note that even though the properties are identical, their sale prices are different; and require different down payments. A requires $60,000 whereas B requires $80,000

1. Given that the total loan amount is same for both A and B, with no preference, other than financing, which would you choose? Why?

2. Assume that the seller of B, provides you a 2^nd mortgage at the same rate as assumable mortgage for 20 years for $40,000. Now, which will you choose? Why?