Question

You have a choice between the following two identical homes: Home A is priced at $ 200,000 with 80% financing at a 14% interest rate for 25 years. Home B is priced at $ 215,000 with an assumable mortgage of $ 135,000 at 12% interest with 25 years remaining. A second mortgage for $ 25,000 can be obtained at 17% interest for 25 years. With no preference other than financing, you need to decide between choosing Home A and Home B. Which house would you choose? Why?

Answer 1

Both options have equal total loan amount of $160,000.

Option with lesser monthly payment is taken.

Particulars	Home A	Home B
		First Mort	Second Mort	Total B
Loan amount	$             160,000	$          135,000	$         25,000	$ 160,000
× PMT factor	0.01281	0.01053	0.01438
Monthly payment	$            2,049.33	$         1,421.85	$         359.45	$ 1,781.30

Home B is taken as it has lower monthly payment (lower finace charge overall).

Please rate.