If you haven%u2019t bought the home inprevious questions yet, consider this case. (Even if you bought,you still need to solve this question!)
You are about to purchase your first homefor personal use. The price of the house is $400K. The propertytaxes and casualty insurance are estimated at $200 and $100 permonth respectively; these two costs are each month in your escrow.You are estimating $3,500 in closing fees and expect to get a 15year fixed rate mortgage for a fixed 4.9% with 2 points. Assumetaxes and insurance remain constant for the duration of the loan.Your PMI payment is $200/month and will be needed as long as LTV ismore than or equal to 80%. The appraised value of the house isexpected to rise at 2% each year (end of year). You are in a 30%tax bracket. All tax credits in a given year will be received atthe end of the year. You have two options:
1) You put down $40,000 on the home (plusany points and closing fees) and take out a 360K mortgage.
2) You put down $40,000 on the home (plusany points and closing fees), borrow another $40,000 from youruncle Vini and pay this back at 10% annual effective interest ratewith 4 payments on 02/30/2010, 02/30/2011, 02/30/2012, 02/30/2013(the interest portion of 40K loan from uncle Vini is non-taxdeductable). You get a 320K mortgage.
You take out the mortgage and buy the houseon March 1 2009. The first payment of the mortgage is due at thebeginning of April 2009. You will sell the property on April1st 2024 (15 years later) at appraised value. MARR is10% per year compounded monthly. What is the present cost of thesetransactions at March 1st 2009 under each option (attachspreadsheet):
Option 1________________
Option 2________________
Should you borrow from theuncle?____________
If you haven%u2019t bought the home inprevious questions yet, consider this case. (Even if you bought,you still need to solve this question!)
You are about to purchase your first homefor personal use. The price of the house is $400K. The propertytaxes and casualty insurance are estimated at $200 and $100 permonth respectively; these two costs are each month in your escrow.You are estimating $3,500 in closing fees and expect to get a 15year fixed rate mortgage for a fixed 4.9% with 2 points. Assumetaxes and insurance remain constant for the duration of the loan.Your PMI payment is $200/month and will be needed as long as LTV ismore than or equal to 80%. The appraised value of the house isexpected to rise at 2% each year (end of year). You are in a 30%tax bracket. All tax credits in a given year will be received atthe end of the year. You have two options:
1) You put down $40,000 on the home (plusany points and closing fees) and take out a 360K mortgage.
2) You put down $40,000 on the home (plusany points and closing fees), borrow another $40,000 from youruncle Vini and pay this back at 10% annual effective interest ratewith 4 payments on 02/30/2010, 02/30/2011, 02/30/2012, 02/30/2013(the interest portion of 40K loan from uncle Vini is non-taxdeductable). You get a 320K mortgage.
You take out the mortgage and buy the houseon March 1 2009. The first payment of the mortgage is due at thebeginning of April 2009. You will sell the property on April1st 2024 (15 years later) at appraised value. MARR is10% per year compounded monthly. What is the present cost of thesetransactions at March 1st 2009 under each option (attachspreadsheet):
Option 1________________
Option 2________________
Should you borrow from theuncle?____________
