CENGAGE MINDTAP Ch 09: Homework Problems - Obtaining Affordable Housing 27 eBook Financial planning cases 9-1 The Johnsons Decide to Buy a Home Belinda Johnson's parents and maternal grandmother have combined their finances and presented Harry and Belinda with $50,000 cash gift to use to purchase a home. The Johnsons have shopped and found a house in a new housing development that they like very much. They could either borrow from the developer or obtain a loan from one of three other mortgage lenders. The financial alternatives and data for the home are summarized in the table below. Home: Price, $290,000; Taxes, $3,700; Insurance, $1,800 Lender 1 30-year Con 5.0% Lender 2 15-year Con 5.5% $ 58,000 232,000 Loan term and type Interest rate Down payment Loan amount Financing Details on a Home Available to the Johnsons Price: $290,000. Developer A will finance the purchase with a 10 percent down payment and a 30-year, 4.5 percent ARM loan with 2 interest points. The initial monthly payment for principal and interest is $1,322.45 ($261,000 loan after the down payment is made; 261 x $5.06685). After one year the rate rises to 5 percent, with a principal plus interest payment of $1,401.10. At that point, the rate can go up or down as much as 2 percent per year, depending on the cost of an index of mortgage funds. There is an interest-rate cap of 5 percent over the life of the loan. Taxes are estimated to be about $3,700, and the homeowner's insurance premium should be about $1,800 annually. A mortgage insurance premium of $88 per month must be paid monthly on the two 10 percent down options. Points Principal and interest payment PMI Adjustable-rate mortgage. Conventional. Renegotiable every five years. Developer A The highest? Lender 2 v PITI payment PMI payment a. Which plan has the lowest total up-front costs? Developer A 30-year ARM 4.5% -Select-v $ 29,000 261,000 1,322.45 blank blank 88 Developer A $ 1,322.45 $ $ 58,000 232,000 88 1 1,245.43 0 b. What would be the full monthly payment for PITI and PMI for each of the options? Round your answers to the nearest cent. Leave no cells blank. Enter "0" wherever required. no cells blank. Enter "0 wherever required. and your answ Lender 3 Lender 1 $1,245.43 $1,245.43 0 1,895.63 Lender 3 20-year Ren 5.0% $ 29,000 261,000 $ $ Lender 2 1895.63 3 0 1,722.48 88 c. If the Johnsons had enough additional cash to make the 20 percent down payment, would you recommend lender 1 or lender 2? ould you recommend $ 1722.48 $ 88 Why? The input in the box below will not be graded, but may be reviewed and considered by your instructor. Q Search this course d. Assuming that the Johnsons will need about $3,000 for moving costs (in addition to closing costs), which financing option would you recommend? Why? The input in the box below will not be graded, but may be reviewed and considered by your instructor.