Question
A prospective first time home buyer is looking to purchase a new home for $400,000 by putting $80,000 down and securing a $320,000 mortgage. The
A prospective first time home buyer is looking to purchase a new home for $400,000 by putting $80,000 down and securing a $320,000 mortgage.
The buyer has gotten the approval for the mortgage and has been given the option of a 15 year mortgage at 3.80% or a 30 year mortgage at 4.20%.
1. What would be the monthly payments for each option?
2. Which option would you recommend to the buyer taking into consideration total interest paid as well as monthly cash flow?
3. Also, assuming the loan was made December 1, 2011, the first payment will be made on January 1, 2012, with every payment thereafter due on the first of the month, what would be the balance of the loan after the December 1, 2012 payment for each option?
4. Finally, what would be the current amount of the liability, that is the total of the next 12 principle payments that will be made after the December 1, 2012 payment?
When doing this project you can create an amortization schedule and print it out to help you answer the question. However, dont hand in the amortization schedule, just hand in the answer to the four questions.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started