Cost of a house is $112,000
Closing cost is 5% of the value of the house.
Financing Opportunities:
• 30 years mortgage at 5% per year with 10% down payment. Loan origination fee 1% of the loan value.
• Taking over the owner mortgage that has another 23 years to run on an initial value of $85,000, at 4% per year. In order to take over the mortgage, you have to pay a fee to the bank of $1,000 and the bank will issue a second mortgage at 8% to match the first mortgage. Origination fee and down payment are the same as for the first mortgage.
• The actual owner is willing to finance the second mortgage directly without any fee at a 10% for 10 years.
Evaluate each option (show work/steps) and choose the best option.