A couple planning to buy a home have found a $300,000 home available with the fo

Question

A couple planning to buy a home have found a $300,000 home available with the folowing mortgage loan options. (option a) the borrowers can obtain an 80 percent loan to value at a 3.5% interest rate with monthly payments amortized over 30 years and closing cost 3% of the new loan. Alternatively, (option b) the couple could obtain a 90 percent loan at 4.75% rate for 30 years and higher closing costs of 4.75% of the new loan. the borrower plans to stay in the home for the entire loan term. Option A. a.) for option A, what is the down payment? $_________ b.) Closing Costs? $___________ c.) Mortgage payment per month? $________. Option B. d.) for option B, what is the down payment? $________ e.) Closing costs? $_________ f.) Mortgage payment per month? $________. APR Calculations g.) if the closing cots are 3% on option A, the 80% loan; what is the loan's annual amount percentage rate? ______________ h.) if the closing costs are 4.5% on option B, the 90% loan; what is the loan's annual percentage rate? ____________

Explanation / Answer

a) Option A down payment = 300000 * 20% = 60000

b) Closing cost = 300000 * 80% * 3% = 7200

c) Mortgage payment per month = =PMT(0.035/12,30*12,-240000,0) = 1077.71

d) Option A down payment = 300000 * 10% = 30000

e) Closing cost = 300000 * 90% * 4.75% = 12825

f) Mortgage payment per month = =PMT=PMT(0.0475/12,30*12,-270000,0) = 1408.45

g) APR for option A = 3.5% + 3%/.8/30 = 3.625%

h) APR for option B = 4.75% + 4.5%/.9/30 = 4.92%

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