You are about to purchase your first home for personal use. The price of the house is $400K. The property taxes and casualty insurance are estimated at $200 and $100 per month respectively; these two costs are placed each month into your escrow. You are estimating $3,500 in closing fees and expect to get a 15 year fixed rate mortgage for a fixed 4.9% APR with 2 points. Assume taxes and insurance remain constant for the duration of the loan. Your PMI payment is $200/month and will be needed as long as LTV is more than or equal to 80%. The appraised value of the house is expected to rise at 2% each year (at the end of each year). You are in a 30% marginal tax bracket. All tax credits in a given year will be received at the end of the year. You have two options:

1) You put down $40,000 on the home (plus any points and closing fees) and take out a 360K mortgage.

2)You put down $40,000 on the home (plus any points and closing fees), borrow another $40,000 from your uncle Vini and pay this back at 10% annual effective interest rate with 4 payments on 02/30/2015, 02/30/2016, 02/30/2017, 02/30/2018 (the interest portion of 40K

loan from uncle Vini is non-tax-deductible). You get a 320K mortgage. You take out the mortgage and buy the house on March 1 20014. The first payment ofXg? mortgage is due at the beginning of April 2014. You will sell the property on April 1st 2029 (15 years later) at its appraised value. Your MARR is 10% per year compounded monthly. What is the present cost of these transactions at March 1st 2014 under each option (attach your spreadsheet):

Option 1________________

Option 2________________

Should you borrow from your uncle?