Mr. and Mrs. Cally are in the process of buying a home for $240,000 and are considering the following home mortgage financing options:
Option 1- 20% down payment, 15 year mortgage and 4% interest with 2% closing costs.
Option2- 10% down payment. 30 year mortgage and 5.5% interest with 4% closing costs.
a. what is the APR for option 1?
APR for option 2?
They plan to live in the home for 5 years and then sell the hoem and move to Texas. They believe that they housing market with appreciate 4% per year in this are for the next 5 years.
b. What is the expected home's value in 5 years?
c. What is the outstanding loan balance in 5 years for option 1: ? for option 2: ?
d. What is the expected equity after 5 years for option 1:? for option 2:?
e. What is the annual rate of return on the cash used to purchase the home? Option 1:? Option 2:?
f. Based upon the rate of return on the cash used to purchase the home, which financing option do you recomment for the inteded 5 year holding period?