To purchase a house for $80,000, a new couple has $12,000 available for down pay

Question

To purchase a house for $80,000, a new couple has $12,000 available for down payment. They are considering two options: Option 1: get a new standard mortgage with 10% APR interest compounded monthly for a 30-year term Option 2: assume the seller’s old mortgage that has an interest rate of 8.5% APR compounded monthly, a remaining term of 25 years (from an original 30 years), a remaining balance of $35,394. You can obtain a second mortgage for the remaining balance from your credit union, at 12% APR compounded monthly, with a 25-year repayment period.

a) What is the effective rate for option 2 per year?

b) Compute the monthly payments for each option over the life of the mortgage

c) What APR charged by the credit union would make the two financing options equivalent?

Explanation / Answer

a)

Effective annual rate = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

EAR =((1+10/12)^12-1)*100 = 10.47%

b)

Option 1

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Option 2

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C) please ask last part seperately as answer cannot be more than 65000 characters

Monthly rate(M)= annual rate/12= 0.83% Monthly payment= 596.7486677 Month Beginning balance (A) 980 Interest = M*A Principal paid Ending balance 1 68000 596.7486677 566.6666667 30.08200099 67969.918 2 67969.918 596.7486677 566.4159833 30.33268434 67939.58531 3 67939.58531 596.7486677 566.163211 30.5854567 67908.99986 4 67908.99986 596.7486677 565.9083321 30.84033551 67878.15952

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323 19368.29879 596.7486677 161.4024899 435.3461778 18932.95261 324 18932.95261 596.7486677 157.7746051 438.9740626 18493.97854 325 18493.97854 596.7486677 154.1164879 442.6321798 18051.34636 326 18051.34636 596.7486677 150.4278864 446.3207813 17605.02558 327 17605.02558 596.7486677 146.7085465 450.0401211 17154.98546 328 17154.98546 596.7486677 142.9582122 453.7904555 16701.19501 329 16701.19501 596.7486677 139.1766251 457.5720426 16243.62296 330 16243.62296 596.7486677 135.3635247 461.385143 15782.23782 331 15782.23782 596.7486677 131.5186485 465.2300191 15317.0078 332 15317.0078 596.7486677 127.6417317 469.106936 14847.90087 333 14847.90087 596.7486677 123.7325072 473.0161604 14374.88471 334 14374.88471 596.7486677 119.7907059 476.9579618 13897.92674 335 13897.92674 596.7486677 115.8160562 480.9326115 13416.99413 336 13416.99413 596.7486677 111.8082844 484.9403832 12932.05375 337 12932.05375 596.7486677 107.7671146 488.9815531 12443.0722 338 12443.0722 596.7486677 103.6922683 493.0563994 11950.0158 339 11950.0158 596.7486677 99.58346498 497.1652027 11452.85059 340 11452.85059 596.7486677 95.44042162 501.308246 10951.54235 341 10951.54235 596.7486677 91.2628529 505.4858148 10446.05653 342 10446.05653 596.7486677 87.05047111 509.6981965 9936.358337 343 9936.358337 596.7486677 82.80298614 513.9456815 9422.412655 344 9422.412655 596.7486677 78.52010546 518.2285622 8904.184093 345 8904.184093 596.7486677 74.20153411 522.5471335 8381.63696 346 8381.63696 596.7486677 69.84697466 526.901693 7854.735267 347 7854.735267 596.7486677 65.45612722 531.2925404 7323.442726 348 7323.442726 596.7486677 61.02868939 535.7199783 6787.722748 349 6787.722748 596.7486677 56.56435623 540.1843114 6247.538437 350 6247.538437 596.7486677 52.0628203 544.6858474 5702.852589 351 5702.852589 596.7486677 47.52377158 549.2248961 5153.627693 352 5153.627693 596.7486677 42.94689744 553.8017702 4599.825923 353 4599.825923 596.7486677 38.33188269 558.416785 4041.409138 354 4041.409138 596.7486677 33.67840948 563.0702582 3478.33888 355 3478.33888 596.7486677 28.98615733 567.7625103 2910.576369 356 2910.576369 596.7486677 24.25480308 572.4938646 2338.082505 357 2338.082505 596.7486677 19.48402087 577.2646468 1760.817858 358 1760.817858 596.7486677 14.67348215 582.0751855 1178.742673 359 1178.742673 596.7486677 9.822855605 586.9258121 591.8168605 360 591.8168605 596.7486677 4.931807171 591.8168605 2.2731E-08

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