Question
QUESTIONS: 1) What is the minimum down payment needed? 2) If he decides to live in his home for more than 5 years and both
QUESTIONS:
1) What is the minimum down payment needed?
2) If he decides to live in his home for more than 5 years and both plans offer him the same loan amount, which mortgage plan is a better choice?
3) Work out an amortization table for the corresponding mortgage plan for the first 12 months.
4) Work out a cost analysis for the buy or rent decision.
INFORMATION NEEDED FOR QUESTIONS:
- Ho is earning HK$30,000 per month and has a saving of total HK$900,000. He is now thinking of getting his first home. There are two choices available to him: 1) to buy a flat at HK$4.4M or 2) to rent a flat at HK$12,000 per month.
- He has done some researches on the corresponding benefits and costs. Below is the information.
-
Renter's insurance
3000
Maintenance
4000
Security deposit
24000
Tax saving
20% of the interest payment
Property tax rate
1% of price of home
Closing costs (exclude stamp duty)
60000
Home insurance
5000
Stamp duty (refer to the lecture note)
- He expects that the value of the property will increase by 1% annually and he can get a rate of return of 4% on his investment.
- He has also searched for some mortgage plans and plans to take a 25 years loans.
-
Bank A
Bank B
Prime rate
5%
5.50%
Spread
2.5%
3.2%
Cash reimbursement
1%
1%
Interest penalty
1% of the mortgage loan for within the 1st year
1% of the mortgage loan for within the 1st 2 years
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