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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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