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You are planning to buy a house. If you pay 20% down payment, a lender offers you a 20 year balloon mortgage for the remaining 80% with 5.9% APR whereby you can pay interest only for the first 5 years of the loan and then pay off the balance of the loan during the remaining 15 years (the first up charge month is the second month of year 6). Property taxes are $2,400 and Casualty Insurance is $1,200 annually. During the first 5 years, you would like to pay $1,900 or less to the lender (for the interest portion of the loan payment) due to a salary limitation. Since you expect a job promotion, you will however afford to increase the payments during the next 15 years as requested by the lender. Assume that you also have enough savings to pay for all necessary upfront costs including insurance, origination fee and the 20% down payment.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945510

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