You want to purchase a house for $85,000, and you have $17,000 cash available for a down payment. You are considering the following two financing options:Option 1: Get a new standard mortgage with 4.5% (APR) interest compounded monthly and a 30-year term.Option 2: Assume the seller's old mortgage (FHA loan) that has an interestrate of 4.0% {APR) compounded monthly, a remaining term of 25 years(from an original term of 30 years), a remaining balance of $45,578, andpayments of $253.34 per month. You can obtain a second mortgage for theremaining balance, $22,422, from your credit union at 6.5% (APR) compounded monthly with a JO-year repayment period.(a) What is the effective interest rate for Option 2?(b) Compute the monthly payments for each option over the life of themortgage.(c) Compute the total interest payment for each option.(d) What homeowner's interest rate (homeowner's time value of money)makes the two financing options equivalent?
You want to purchase a house for $85,000, and you have $17,000 cash available for a down payment. You are considering the following two financing options:
Option 1: Get a new standard mortgage with 4.5% (APR) interest compounded monthly and a 30-year term.
Option 2: Assume the seller's old mortgage (FHA loan) that has an interest
rate of 4.0% {APR) compounded monthly, a remaining term of 25 years
(from an original term of 30 years), a remaining balance of $45,578, and
payments of $253.34 per month. You can obtain a second mortgage for the
remaining balance, $22,422, from your credit union at 6.5% (APR) compounded monthly with a JO-year repayment period.
(a) What is the effective interest rate for Option 2?
(b) Compute the monthly payments for each option over the life of the
mortgage.
(c) Compute the total interest payment for each option.
(d) What homeowner's interest rate (homeowner's
makes the two financing options equivalent?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
