Question
Suppose you are buying a house that cost $300,000. You make a 10% down payment and are also going to make semiannual payments for next
Suppose you are buying a house that cost $300,000. You make a 10% down payment and are also going to make semiannual payments for next 10 years on the balance of the loan which you are financing at 5% APR. Also, the IRS allows the tax exemption for the mortgage interest payment at the end of each year and your tax rate is 30% (i.e. Tax saving = annual interest * tax rate). Using the given information, construct the amortization table and answer the following questions;
a) What is the semiannual payment of your mortgage loan?
b) How much interest do you pay at the first year?
c) What is the tax saving at the first year?
d) What is after-tax semiannual payment at the second half of the fifth year?
e) Counting the tax savings, what is the net present value of the house you will buy? f) At what tax rate the net present value of the house becomes $250,000?
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