The assumable loan so that no additional down payment would


You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent for 20 years. Property B is priced at 160,000 with an assumable mortgage of 100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing.

1. With no preference other than financing, which property would you choose?

2. How would you answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan?

3. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required b y the buyer if the loan were assumed?

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Financial Management: The assumable loan so that no additional down payment would
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