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Determine the revenue that Mortgage 1 generates Case Deecription Paul and Leslile Smithson are buying a new house. They have agreed on a price of
Determine the revenue that Mortgage 1 generates
Case Deecription Paul and Leslile Smithson are buying a new house. They have agreed on a price of $300,000 with the sellers. Paul and Leslle are both 30 years old and dream long term of retiring at the age of 65. It is this dream that drives them to determine a mortgage arrangement that allows them to generate the maximum retirement account balance. It is known that they fall into the 28% effective tax bracket on their personal income taxes. They currently have accumulated $30,000 to use for the down payment and closing costs on their house. Any excess amount not used in this way could be used as an Initial deposit In their retirement savings account. Alternatively, any excess could be used to make a down payment in excess of the minimum requirement. They have determined that they can afford $2,500/ month to cover both mortgage payments and personal retirement savings. They are strongly committed to their retirement travel plans, so any of the $2,500 not spent on the mortgage will be invested in the retirement savings account. In addition, any tax savings generated through the mortgage will be deposited in the retirement account. The $2,500 per month can be considered constant over the next 35 years.They have selected a retirement savings vehicle which involves investment in a tax sheltered mutual fund which pays an average of 9% per year compounded monthly. Paul and Leslie, with the help of an investment banker, have studied the history of this fund and are comfortable that the 9%)mmo average return over their 35 year retirement savings horizon is reasonable. Undoubtedly their will be ups and downs but the longterm average of 9% appears to be reasonable and stable for planning purposes. Since this is a tax sheltered account, all investments will grow tax free until their retirement 30 year fixed rate @ 3.58%/yrrmo, monthly payments, minimum 5% down payment, 1 point closing costs "1 point" closing costs equals 1 percent of the loan value. These costs are associated with creating the loan and are due at the time the loan is originated (along with the down payment). They are not tax deductible.) Paul and Leslie's timing is such that the annual mortgage cycle will coincide with thecalendar year.) (Tax savings are calculated on a calendar year basis.) Available retirement plan funds are deposited on a monthly basis.) (interest payments on all mortgages are tax deductible. This generates tax savings foreach payment based on the following equation tax savings offective tax rato the interest portion of the mortgage payment) Case Deecription Paul and Leslile Smithson are buying a new house. They have agreed on a price of $300,000 with the sellers. Paul and Leslle are both 30 years old and dream long term of retiring at the age of 65. It is this dream that drives them to determine a mortgage arrangement that allows them to generate the maximum retirement account balance. It is known that they fall into the 28% effective tax bracket on their personal income taxes. They currently have accumulated $30,000 to use for the down payment and closing costs on their house. Any excess amount not used in this way could be used as an Initial deposit In their retirement savings account. Alternatively, any excess could be used to make a down payment in excess of the minimum requirement. They have determined that they can afford $2,500/ month to cover both mortgage payments and personal retirement savings. They are strongly committed to their retirement travel plans, so any of the $2,500 not spent on the mortgage will be invested in the retirement savings account. In addition, any tax savings generated through the mortgage will be deposited in the retirement account. The $2,500 per month can be considered constant over the next 35 years.They have selected a retirement savings vehicle which involves investment in a tax sheltered mutual fund which pays an average of 9% per year compounded monthly. Paul and Leslie, with the help of an investment banker, have studied the history of this fund and are comfortable that the 9%)mmo average return over their 35 year retirement savings horizon is reasonable. Undoubtedly their will be ups and downs but the longterm average of 9% appears to be reasonable and stable for planning purposes. Since this is a tax sheltered account, all investments will grow tax free until their retirement 30 year fixed rate @ 3.58%/yrrmo, monthly payments, minimum 5% down payment, 1 point closing costs "1 point" closing costs equals 1 percent of the loan value. These costs are associated with creating the loan and are due at the time the loan is originated (along with the down payment). They are not tax deductible.) Paul and Leslie's timing is such that the annual mortgage cycle will coincide with thecalendar year.) (Tax savings are calculated on a calendar year basis.) Available retirement plan funds are deposited on a monthly basis.) (interest payments on all mortgages are tax deductible. This generates tax savings foreach payment based on the following equation tax savings offective tax rato the interest portion of the mortgage payment) Step by Step Solution
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