Question

In: Finance

A homebuyer intends to purchase a $300,000 home. The two financing options available to the buyer...

A homebuyer intends to purchase a $300,000 home. The two financing options available to the buyer are: 1) he can obtain 80% loan at a 4.25% interest rate with monthly payments amortizedover 30 years and total closing costs of 2.5% of the new loan.

What is the APR for option 1?

2) He can obtain 95% FHA loan at a rate of 6.75% with monthly payments amortized over 30 years and total closing costs of 5.5% of the new loan.

What is the APR for option 2?

Solutions

Expert Solution

1.

Value of home = $300,000

Value of loan = $300,000 × 80%

= $240,000

Value of loan is $240,000.

Closing cost = $240,000 × 2.50%

= 6,000.

Total amont need to borrow = $240,000 + $6,000

= $146,000.

Monthly payment on loan is calculated in excel and screeen shot provided below:

Monthly payment is $1,210.17.

Effectively loan was $240,000 and pays $1,210.17 month. So effective annual rate is calculated in excel and screen shot provided below:

Effective annual rate is 4.46%.

b.

Value of home = $300,000

Value of loan = $300,000 × 95%

= $285,000

Value of loan is $285,000.

Closing cost = $285,000 × 5.50%

= 15,675

Total amont need to borrow = $285,000 + $15,675

= $300,675.

Monthly payment on loan is calculated in excel and screeen shot provided below:

Monthly payment is $1,950.17

Effectively loan was $285,000 and pays $1,950.17 month. So effective annual rate is calculated in excel and screen shot provided below:

Effective annual rate is 7.28%.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A married couple are comparing the financing costs for the purchase of a $300,000 home. The...
A married couple are comparing the financing costs for the purchase of a $300,000 home. The couple have good credit score of 790 and the required down payment, and as a result, can obtain a conventional mortgage loan with an 80 percent loan to value mortgage at a rate of 4.5% for a term of 30 year fixed rate mortgage. Closing costs for the conventional loan are 3% of the amount of the new mortgage. Compute the following for the...
A married couple are comparing the financing costs for the purchase of a $300,000 home. The...
A married couple are comparing the financing costs for the purchase of a $300,000 home. The couple have good credit score of 790 and the required down payment, and as a result, can obtain a conventional mortgage loan with an 80 percent loan to value mortgage at a rate of 4.5% for a term of 30 year fixed rate mortgage. Closing costs for the conventional loan are 3% of the amount of the new mortgage. Compute the following for the...
Kim Buyer is purchasing a home. The purchase price for the home is $125,000. Kim is...
Kim Buyer is purchasing a home. The purchase price for the home is $125,000. Kim is obtaining a loan from Acme Loan Company for $105,000. What is the amount of title insurance that Kim can purchase. What is the amount of title insurance that Acme Loan Company can purchase? and why.
Oriole Tooling Ltd. is assessing two available options for the purchase of new equipment with a...
Oriole Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $180,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. Oriole has a proposal from its bank for an instalment loan for two years that requires a...
Sheridan Tooling Ltd. is assessing two available options for the purchase of new equipment with a...
Sheridan Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $100,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. Sheridan has a proposal from its bank for an instalment loan for two years that requires a...
An investor would like to purchase a $2,000,000 new apartment house and has two financing options...
An investor would like to purchase a $2,000,000 new apartment house and has two financing options under consideration: Option 1 includes a 70% loan to value mortgage for 15 years at 6.5% interat and 3% closing costs. Option 2 includes an 80% loan to value mortgage for 15 years at 7.5% interest and 4% closing costs. Compute the APR for each mortgage option and the incremental cost of borrowing the additional amount if option 2 is selected.
M&B Tooling Ltd. is assessing two available options for the purchase of new equipment with a...
M&B Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $100,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. M&B has a proposal from its bank for an instalment loan for two years that requires a...
Henry Jones intends to purchase a home unit and needs to borrow money from the bank....
Henry Jones intends to purchase a home unit and needs to borrow money from the bank. Details of the loan are as follows: Loan Amount $732,000 Term (years)         14 Annual Interest Rate                      5.00% The loan is repaid using Monthly instalments. At the end of the sixth year, just after paying the 72nd instalment due at that time, Henry has a windfall and is considering paying out the loan. Required: How much money would be required to discharge the loan at the...
If John wants to purchase a new home for $300,000 and finance $220,000 with either a...
If John wants to purchase a new home for $300,000 and finance $220,000 with either a 4.%, 30- year mortgage or a 3.5%, 15-year mortgage. a. What is the monthly payment on each of the above alternatives? b. How much interest would be paid in the first 12 payments for each of the above alternatives? c. What would the loan balance be after 10 years for each of the above alternatives?
If John wants to purchase a new home for $300,000 and finance $220,000 with either a...
If John wants to purchase a new home for $300,000 and finance $220,000 with either a 4.%, 30- year mortgage or a 3.5%, 15-year mortgage. a. What is the monthly payment on each of the above alternatives? b. How much interest would be paid in the first 12 payments for each of the above alternatives? c. What would the loan balance be after 10 years for each of the above alternatives?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT