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You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. a. With no preference other than financing, which property would you choose? b. How would your answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan? c. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed?

You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. a. With no preference other than financing, which property would you choose? b. How would your answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan? c. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. a. With no preference other than financing, which property would you choose? b. How would your answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan? C. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed?
Transcribed Image Text:You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. a. With no preference other than financing, which property would you choose? b. How would your answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan? C. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed?
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